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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 0-17139
GENUS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
CALIFORNIA 94-2790804
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1139 Karlstad Drive, Sunnyvale, CA 94089
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (408) 747-7120
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, no par
value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on February
27, 1998, in the over-the-counter market as reported by the NASDAQ National
Market, was approximately $29,978,000. Shares of Common Stock held by each
officer and director and by each person who owns 5% or more of the outstanding
voting stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of February 27, 1998, Registrant had 17,129,260 shares of Common Stock
outstanding.
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TABLE OF CONTENTS
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PART I Item 1. Business
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Markets
Products
Marketing, Sales and Service
Research and Development
Competition
Manufacturing and Suppliers
Intellectual Property
Employees
Environmental Regulation
Recent Developments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure
PART III Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports of Form 8-K:
(1) Financial Statements
(2) Financial Statement Schedule
(3) Exhibits
(4) Reports on Form 8-K
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PART I
ITEM 1.
BUSINESS
Genus, Inc. ("Genus" or "the Company") designs, manufactures and markets
capital equipment and processes for advanced semiconductor manufacturing. The
Company's products, high energy millions of electron volts ("MeV") ion
implantation systems and chemical vapor deposition ("CVD") equipment, are used
worldwide to produce integrated circuits ("ICs") for the data processing,
communications, medical, military, transportation and consumer electronics
industries. Genus pioneered the technical development of high energy MeV ion
implantation and the CVD of tungsten silicide ("WSix"), which perform two
critical steps in the manufacture of semiconductors. These technologies enable
chip manufacturers to simplify their IC production process and lower their
cost-of-ownership.
The Company's global customer base consists of semiconductor manufacturers
in the United States, Europe and Asia/Pacific including Japan, South Korea and
Taiwan.
MARKETS
MEV ION IMPLANTATION
Ion implantation is the process by which a beam of electrically charged
dopant atoms (ions) are accelerated and driven into the surface of a silicon
wafer. This process alters the electrical characteristics of the silicon by
making it more or less conductive. Since its inception, ion implantation has
been used to create all of the active devices, such as transistors, in an IC.
Genus implanters have led the way to new applications where "wells" are formed
to isolate the active devices.
The market for ion implanters consists of three primary segments: high
current, medium current and high energy. Currently, high and medium current ion
implanters make up approximately 80% of the total ion implantation market.
However, high energy ion implantation is one of the fastest growing segments in
the entire capital equipment industry due to its use in emerging advanced
technology simplification applications. High energy MeV ion implantation
improves transistor performance and reduces overall manufacturing costs by
placing dopants deep into the silicon to create regions that isolate transistors
from one another.
Ion implantation systems accounted for 68%, 62% and 41% of total revenues
for 1997, 1996 and 1995, respectively.
THIN FILM (CVD)
The manufacture of ICs includes the formation of isolation, transistor and
interconnect capabilities. Genus' CVD equipment provides thin films for the gate
electrode of the transistor and for barrier metal to clad the interconnect and
contact elements. WSix is used as a gate electrode and also improves the
conductivity of local interconnects, producing faster Dynamic Random Access
Memory ("DRAM"), Static Random Access memory ("SRAM") and flash memory devices.
Tungsten nitride ("WN") is emerging as a barrier-of-choice for advanced gate
formation, memory cell electrodes and metal interconnect and contact
applications in logic.
CVD systems accounted for 32%, 38% and 59% of total revenues for 1997, 1996
and 1995, respectively.
Information regarding the Company's foreign and domestic operations and
export sales is included in Note 14 of Notes to Consolidated Financial
Statements.
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PRODUCTS
The primary products manufactured by Genus include four MeV ion implantation
systems and three CVD systems. Each of these products is available with a
variety of options and/or upgrades.
CURRENT MEV ION IMPLANT PRODUCTS
THE KESTREL-TM- FAMILY OF ION IMPLANTERS. Introduced in July 1997, Genus'
fourth-generation of implanters, the Kestrel Family, offers high productivity
manufacturing, low cost-of-ownership and flexibility for MeV, medium current
backup, chained implants, mainstream retrograde well and advanced well
applications. The Kestrel's accelerator, a direct current ("DC") tandem-based
design, simplifies both operation and maintenance while also providing the
lowest power consumption and smallest footprint of any high energy system
currently in the market. In addition, the system's DC tandem allows fast energy
change times resulting in a superior ability to chain multiple implants together
without unloading wafers. This enhances overall throughput as well as reducing
cost-of-ownership. The system's end station, where the ion beam meets the
wafers, is optimized for high energy applications. The large volume of the
process chamber and the design of the high vacuum pumping system minimizes a
phenomenon known as photoresist outgassing which can hamper throughput and
process quality in implanters. All-in-vacuum wafer handling generates the fewest
particles added per wafer pass of any high energy implanter. These benefits all
translate to higher yields and greater cost savings.
As the high energy market has moved from high volume production to a
bifurcated one that is application specific, the Kestrel family of products is
poised to meet the varying requirements with appropriate price and performance.
KESTREL 750. The Kestrel 750, the most recent addition to the Kestrel
family, is best used for advanced well applications such as triple wells and
Genus developed and patented BILLI (see below). The accelerator technology for
the Kestrel 750 has been improved in several dimensions. Most importantly, the
maximum energy range has been increased 15% for each charge state. This
translates into greater beam currents at critical energies (higher throughput
and lower cost-of-ownership) to support advanced well applications. The value of
this new accelerator design, higher energy and beam currents, is achieved while
increasing the Kestrel's reliability, serviceability and stability. These
advantages have been incorporated without expanding the system's small
footprint.
KESTREL 650. The Kestrel 650 has been optimized to meet the requirements of
established retrograde well applications which require a lower price/performance
point. The accelerator design is the same as that of the Tandetron-TM- 1520
which is used worldwide for retrograde well, research and development ("R&D") as
well as production applications.
Both the Kestrel 650 and 750 possess a multi-faceted improvement to process
chamber vacuum integrity. All three critical elements for minimizing photoresist
outgassing (process chamber volume, cryo pump location and cryo pump size) have
been improved. Both products also offer significant improvements in the areas of
gas distribution, dose control and low energy control. Additionally, each
product comes with an extended warranty on the accelerator. This warranty covers
all major accelerator components (except the turbopump) for four years on the
Kestrel 650 and five years on the Kestrel 750.
In addition to these improvements, the Kestrel products include all of the
advantages present in the Tandetron 1520, Genus' third-generation MeV ion
implanter introduced in November 1995. The Tandetron 1520 evolved from the
highly successful Genus 1500 system, introduced in 1988, and the Genus 1510
system, introduced in 1992.
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The advantages of the Kestrel products are based on an overall philosophy of
design simplicity. Modular construction improves manufacturing cycle times,
system installation times and ease of maintenance. In addition, improved
features such as a more efficient, longer lasting Bernas Ion Source, provide
significant advantages in manufacturing environments.
TANDETRON 1520 AND GENUS 1510. Introduced in 1995 and 1992, respectively,
the Tandetron 1520 and Genus 1510 are Genus' previous generation MeV ion implant
products. While the Company no longer actively sells these products, the Company
does continue to provide service and sell spare parts for these products
pursuant to service and spare parts purchase agreements.
BILLI TECHNOLOGY FOR THE KESTREL FAMILY OF IMPLANTERS
To further advance low-cost manufacturing processes, Genus developed,
through joint development programs with its customers, a special isolation
technology called the Buried Implanted Layer for Lateral Isolation ("BILLI")
structure and process. BILLI, an advanced MeV retrograde well formation
technology, can be used for process simplification in the manufacture of DRAM,
SRAM and flash memory as well as logic. BILLI can eliminate one to two masking
steps from current standard MeV retrograde well processes and three to four
masking steps from conventional diffused well processes. An additional benefit
that BILLI brings to logic IC design is that transistors can be placed closer
together on a chip, improving packing densities. Also, when the BILLI structure
is used, latch up, a parasitic effect that degrades Complementary Metal Oxide
Semiconductor ("CMOS") IC performance, can be improved thus delaying the
introduction of complex oxide isolation schemes such as shallow trench
isolation. In some cases, use of the BILLI structure has eliminated the need to
use expensive silicon epitaxy. Presently, several of the world's leading device
makers are engaged with the Company in joint development programs established to
develop low-cost manufacturing processes utilizing the BILLI process.
A representative list of Genus' ion implant customers include: AMD, Fujitsu,
Hyundai, LG Semicon, Mitsubishi, Newport Wafer-Fab Ltd., Philips Semiconductor,
Samsung, SGS-Thomson, Sharp, Sony, Symbios Logic and TSMC. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors--Reliance on a Small Number of Customers and Concentration of Credit
Risk."
CURRENT THIN FILM PRODUCTS
Genus' CVD systems are designed for the deposition of WSix and WN on the
gate electrode and interconnect. The Company offers the LYNX2-TM- (formerly
called the 7000 Series), a single wafer, thin film cluster tool. Genus' two
other hardware architectures, the 8700 Series and the 6000 Series, deposit WSix
using batch processes.
GENUS LYNX2 SYSTEM. Introduced in December 1994, the Genus 7000 Series was
renamed the LYNX2 in July 1997 in conjunction with the introduction of two new
films. The LYNX2 system was designed to meet the advanced technology
requirements of the 16M DRAM generation and beyond. This single wafer, open
architecture cluster tool supports silane and dichlorosilane ("DCS") process
chemistries. Semiconductor manufacturers benefit by the high throughput offered
by the LYNX2, which results in higher productivity and lower cost-of-ownership.
By offering the lowest fluorine content, manufacturers using DCS also gain more
reliable gate oxides with the Genus LYNX2. In addition, its low deposited stress
provides higher process yields with improved step coverage.
This system is currently used in production by manufacturers of advanced
DRAM and flash memory devices to 0.25 micron. The LYNX2 features a Modular
Equipment Standards Committee ("MESC") compatible wafer handling platform from
Brooks Automation with a centrally located, dual end effector robot for high
throughput operation with up to four process modules. The cluster tool is
controlled by an easy-to-use Windows-TM---based graphic user interface. The
modular design of the LYNX2 enables the addition of other process modules to the
cluster tool. Other manufacturing advantages offered by the
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LYNX2 include a multi-zone resistive heater for more uniform wafer heating,
two-zone showerheads for improved film composition uniformity and a
state-of-the-art gas delivery system that minimizes chamber-to-chamber variance.
LRS SILICIDE. LRS Silicide, a Low-Resistivity, low-Stress ("LRS") CVD WSix,
was introduced by Genus in December 1996. LRS silicide offers a 20% reduction in
resistivity and extremely as-deposited low stress, while retaining the
advantages of conventional DCS chemistry. Memory device manufacturers using the
production-proven DCS and tungsten hexafluoride chemistries can easily insert
LRS silicide into existing process flows, providing increased yields and faster
devices.
TUNGSTEN NITRIDE. In July 1997, Genus announced the industry's first
plasma-enhanced CVD WN barrier film. This film, compatible with the LYNX2
product platform, has the potential for broadening Genus' thin film customer
base by bringing the Company's CVD products into the logic market. WN enables
gigabit-scale DRAM device production by serving as the top barrier electrode for
tantalum oxide capacitors. WN is amorphous as deposited (to 500 degrees
centigrade), and acts as a superior barrier even when deposited to a thickness
of 100 angstroms. It has also been proven to be a superior barrier for copper
diffusion relative to titanium nitride, and can be used as an adhesion layer for
blanket tungsten.
GENUS 8700 SERIES AND 6000 SERIES. The 8700 Series and 6000 Series are
Genus's previous generation Thin Film products. While Genus no longer actively
sells these products, it does continue to sell spare parts and provide service
for these products pursuant to spare parts purchase agreements and service
agreement.
Genus' Thin Films manufacturing facility maintains and operates a Class-1
cleanroom to demonstrate integrated applications with their customers. The Genus
technical staff includes an experienced consulting resource for successful
process integration of its products and processes.
Samsung Electronics Company, Ltd. is the primary customer for the current
generation thin film product, and revenue from spare parts and service is
provided from AMD, Fujitsu, Hitachi, Hyundai, IBM, Intel, LG Semicon, Sanyo,
SGS-Thomson and Sharp, which own earlier generation products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors-- Reliance on a Small Number of Customers and Concentration of Credit
Risk."
MARKETING, SALES AND SERVICE
Genus sells and supports its ion implantation and CVD products through
direct sales and customer support organizations in the U.S., Western Europe and
South Korea and through eight exclusive, independent sales representatives and
distributors in the U.S., Europe, Japan, South Korea, Taiwan, Hong Kong and
Singapore. Yarbrough Southwest provides sales distribution in the Southwestern
region of the U.S. and SemiTorr in the Northwest. Genus Europa supports and
sells Genus' equipment in Europe, and Macrotron Systems GmbH represents Genus in
Germany. Genus KK provides field service and support in Japan. Innotech
Corporation serves as the Company's sales distributor and augments Genus KK's
support efforts in Japan. Genus Korea, Ltd., provides in-country field service
and support, and in late 1997, assumed all responsibilities for system sales in
South Korea. Sales in the Singapore and Taiwan market segments are served by the
representative organizations of Spirox Singapore, Pte. Ltd. and Spirox Taiwan,
respectively. Hong Kong and the People's Republic of China are served by Katech
International, Ltd., based in Hong Kong. The Asia/Pacific organizations provide
sales and service, as well as distribution assistance for spare parts. Genus
distributes spare parts from several worldwide depots including Sunnyvale,
California; Newburyport, Massachusetts; Austin, Texas; Tokyo, Japan; Seoul,
Korea; Hsin-Chu City, Taiwan; and Evry, France. To facilitate its marketing
efforts, the Company has cleanroom applications laboratories in Sunnyvale,
California, and Newburyport, Massachusetts.
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Genus' products are sold primarily to domestic and foreign device
manufacturers, including both foundries (companies producing semiconductors
principally for other semiconductor manufacturers) and companies producing
semiconductors mainly for outside sales.
The Company maintains sales, technical support and service personnel at its
principal executive offices located in Sunnyvale, California and Newburyport,
Massachusetts. Genus has also established several foreign subsidiaries to
facilitate its sales and service activities abroad: Genus Korea, Ltd. in Seoul,
Korea; Genus KK in Tokyo, Japan; Genus Europa SARL in Evry, France; Genus Europa
Ltd. in Melbourn, Herts, England; Genus Europa GmbH in Stuttgart, Germany; and
Genus Europa Srl. in Milan, Italy. These subsidiaries provide installation,
field service and maintenance, as well as additional technical support to assist
Genus' customers in effectively utilizing the Company's products. Such services
are also provided by the Company's distributors in Tokyo, Taipei, Singapore and
Hong Kong. The Company warrants its products against defects in material and
workmanship for 12 months. In December 1997, Genus announced the industry's
first extended factory warranty program covering the accelerators of its new
Kestrel 650 and 750 systems. Under this new program, the Company's accelerators
are guaranteed against failures or degradation in performance for four years on
the Kestrel 650 and five years on the Kestrel 750.
While the Company has experienced no difficulty to date in complying with
U.S. export controls, these rules could change in the future and make it more
difficult or impossible for the Company to export its products to various
countries and could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company continued its efforts to expand its customer base in 1997 and
was successful, with new customers in Taiwan and North America. Historically,
the Company has relied on a limited number of customers for a substantial
portion of its net sales. In 1997, two customers, Samsung Electronics Company,
Ltd. and Innotech Corporation accounted for 47% and 17%, respectively, of the
Company's net sales. In 1996, these same two customers accounted for 53% and
18%, respectively, of the Company's net sales. Additionally, three customers,
Samsung Electronics Company, Ltd., Micron Technology, Inc. and Innotech
Corporation, accounted for an aggregate of 75% of accounts receivable at
December 31, 1997; and three customers, Samsung Electronics Company, Ltd.,
Innotech Corporation and Newport Wafer-Fab Ltd., accounted for an aggregate of
71% of accounts receivable at December 31, 1996. Because the semiconductor
manufacturing industry is concentrated in a limited number of generally larger
companies, the Company expects that a significant portion of its future product
sales will be concentrated within a limited number of customers. None of these
customers has entered into a long-term agreement requiring it to purchase the
Company's products. Furthermore, sales to certain of these customers may
decrease in the future when those customers complete their current semiconductor
equipment purchasing requirements for new or expanded fabrication facilities.
The loss of a significant customer or any reduction in orders from a significant
customer, including reductions due to customer departures from recent buying
patterns, market, economic or competitive conditions in the semiconductor
industry or in the industries that manufacture products utilizing ICs, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
BACKLOG. The Company's backlog at December 31, 1997, was approximately
$25.6 million, compared with approximately $19.8 million at December 31, 1996.
Genus includes in its backlog only those orders for which a customer purchase
order has been received and a delivery date within 12 months has been specified.
The Company's backlog at December 31, 1997, consisted of product shipments of
$21.6 million and non-recurring engineering revenue of $4.0 million expected to
be delivered during calendar year 1998. However, because of the possibility of
customer changes in delivery schedules or cancellations of orders, the Company's
backlog as of any particular date may not be representative of actual sales for
any succeeding period.
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RESEARCH AND DEVELOPMENT
Constant technological change, fierce competition and a high rate of
technical obsolescence are key characteristics of the semiconductor equipment
industry. Genus' future prospects depend in part on the Company's ability to
broaden its market acceptance by differentiating its products on the basis of
production-worthiness, technical capability, productivity, particle control and
customer support. For thin film, the Company's research and development has
focused on tungsten nitride film, a general purpose process module and advanced
ultra thin film CVD technologies. For ion implant, the Company's research and
development has focused on a multipurpose implanter. The Company has a class 1
applications laboratory and a separate thin films development area in
California, and the Company has a class 10 applications laboratory that also
serves as a test center in Massachusetts. The Company spent $12.3 million, $14.6
million and $12.6 million on R&D during 1997, 1996 and 1995, respectively. To
maintain close relationships with its customers and remain responsive to their
requirements, continued investment is needed for R&D. R&D expenses may increase
in the future.
As part of its R&D program, the Company has established technical research
relationships with Advanced Micro Devices, Inc., a major semiconductor
manufacturer, and the University of Colorado to further enhance its product
development and knowledge for advanced Ultra Large Scale Integration ("ULSI")
devices.
COMPETITION
The Company believes that the principal competitive factors in the
semiconductor equipment market are product performance, quality and reliability,
wafer throughput, customer support, equipment automation, price and
relationships.
Genus competes with a number of companies that historically have had wider
name recognition, broader product acceptance within the industry and
substantially greater resources. In addition, the rapid rate of technological
change in the industry creates opportunities for firms to enter this market and
apply new technologies to meet its needs. Accordingly, the Company anticipates
that it will continue to face competition in the domestic as well as foreign
market from both well-established and new competitors. There can be no assurance
that the Company can successfully compete with such companies.
In the ion implantation market, the Company's MeV ion implantation system
competes primarily with one other MeV system. The Company believes that its high
energy MeV system currently has certain technological advantages over the
competing MeV systems, including the simplest system architecture, the lowest
power and water requirements, the fastest energy change times to generate the
highest production chained implant throughputs, a true MeV process chamber to
minimize outgassing and increase MeV production throughput, and the lowest
particulate levels in the industry to obtain the highest yields. Genus has new
applications for MeV ion implantation technology that it believes will see
widespread use in the future since they enable significant manufacturing cost
reduction and improved IC performance. The Company estimates that its market
share of the high-energy ion implantation market was 33% for 1997, up from 26%
for 1996. The Company faces direct competition from Eaton Corporation. The
presence of Eaton in the MeV marketplace continued to increase during 1997.
There can be no assurance that competition in the Company's particular MeV
product market will not intensify or that Genus' technical advantages may not be
reduced or lost as a result of technical advances made by competitors or changes
in semiconductor processing technology.
In the CVD market, Genus competes with other producers of CVD systems, as
well as alternative methods of deposition, such as sputtering and thin films
other than WSix, WN and DCS. The Company has an installed base of 400 tools
worldwide. The Company estimates that its market share for the stand-alone
WSi(x) was 38% for 1997, up from 25% for 1996. The Company faces direct
competition in all three films from Applied Materials, Inc. and Tokyo Electron,
Ltd. The impact of their presence in these niche markets continued to increase
during 1997. There can be no assurance that levels of competition in the
Company's particular CVD product market will not intensify or that Genus'
technical advantages may not be reduced
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or lost as a result of technical advances made by competitors or changes in
semiconductor processing technology.
MANUFACTURING AND SUPPLIERS
Most of the components for the Company's CVD systems are produced in
subassemblies by independent domestic suppliers according to the Company's
design and procurement specifications. Many components of the Company's MeV ion
implantation systems are also acquired as subassemblies from outside domestic
vendors. The Company anticipates that the use of such subassemblies will
continue to increase in order to achieve additional manufacturing efficiencies.
The Company has alternate sources of supply for the components and parts
purchased from outside suppliers, except for certain components used in its CVD
tungsten and MeV ion implantation products which are presently available only
from a single source. To date, the Company has been able to obtain adequate
supplies of such components in a timely manner from existing sources. The
inability to develop alternate sources or to obtain sufficient source components
as required in the future, however, could result in delays of product shipments
that would have a material adverse affect on the Company's operating results.
The Company's thin film CVD operation is located in Sunnyvale, California,
and its MeV ion implantation technology manufacturing operation is located in
Newburyport, Massachusetts.
INTELLECTUAL PROPERTY
The Company believes that because of the rapid technological change in the
industry, its future prospects will depend primarily upon the expertise and
creative skills of its personnel in process technology, new product development,
marketing, application engineering and product engineering, rather than on
patent protection. Nevertheless, the Company has a policy to actively pursue
domestic and foreign patent protection to cover technology developed by the
Company. The Company currently holds 13 United States patents relating to ion
implantation and 19 United States patents relating to thin film. All of the
patents have at least five years remaining on their term.
EMPLOYEES
As of December 31, 1997, the Company employed 301 people on a full-time
basis. Genus reduced its workforce in January 1997 by 8%. The Company believes
that its relations with its employees are satisfactory. None of the employees
are covered by a collective bargaining agreement.
ENVIRONMENTAL REGULATION
Federal, state and local regulations impose various environmental controls
on the discharge of chemicals and gases used in the manufacturing process. The
Company believes that its activities conform to present environmental
regulations. Increasing public attention has, however, been focused on the
environmental impact of semiconductor operations. While the Company has not
experienced any materially adverse effects on its operations from governmental
regulations, there can be no assurance that changes in such regulations will not
impose the need for additional capital equipment or other requirements. Any
failure by the Company to adequately restrict the discharge of hazardous
substances could subject it to future liabilities or could cause its
manufacturing operations to be suspended.
RECENT DEVELOPMENTS
PRIVATE PLACEMENT OF CONVERTIBLE PREFERRED STOCK. In February 1998, the
Company issued equity securities through a private placement of Series A
Convertible Preferred Stock ("Series A Stock") for gross proceeds of $5 million.
Upon fulfillment of certain conditions, the same investors in the Company's
Series A Stock (the "Preferred Investors") have committed to providing an
additional $5 million in equity financing through the private placement of
Series B Convertible Preferred Stock (the "Series B Stock"). Among the
conditions that must be satisfied before the Company may require the purchase of
the Series B Stock are the following: (a) the closing bid price per share of the
Common Stock of the Company shall be
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no less than $4.00 for the 30 trading days prior to the Company's notice to the
Preferred Investors of its intention to require their purchase of the Series B
Stock; (b) such notice by the Company may not be given sooner than 90 days after
the effectiveness date for the shares registered pursuant to a Registration
Statement on Form S-3 (the "Series A Registration") and no suspension or stop
order may have been entered against such Series A Registration; (c) the closing
bid price for the Common Stock of the Company shall not, in the 30 trading days
prior to the completion of the sale of the Series B Stock, have decreased by
greater than 35% from the highest closing bid price during such period, (d) the
maintenance of a waiver in connection with existing bank line of credit and (e)
no change of control of the Company shall have occurred. "Change of control" is
defined as, (i) the acquisition of more than 50% of the voting securities of the
Company, (ii) the replacement of more than one-half the members of the Board of
Directors, (iii) the merger of the Company with or into another entity, (iv) the
sale of all or substantially all of the assets of the Company, or (v) the
execution of any agreement providing for any of (i), (ii), (iii), or (iv)
above). Accordingly, if the Asset Sale, as defined below, is deemed to be a sale
of substantially all of the assets of the Company and the Asset Sale is
completed, the Company cannot require the Investors to purchase the Series B
Stock nor can the Investors require the Company to sell the Series B Stock.
SALE OF ASSETS. In April 1998, the Company entered into an agreement with
Varian Associates, Inc. to sell selected assets and transfer selected
liabilities related to the MeV ion implantation equipment product line for
approximately $25 million plus additional payments if certain revenue targets
are achieved ("Asset Sale"). The completion of the Asset Sale is subject to
approval by the Company's shareholders as well as to expiration of the
applicable waiting periods under federal Hart-Scott-Rodino premerger
notification requirements. As a result of the Asset Sale, the Company will no
longer engage in the ion implant business and will refocus its efforts on thin
film deposition. The Company will use the net proceeds of the Asset Sale for
repayment of certain outstanding indebtedness as well as for working capital and
general corporate purposes, including investment in research and development of
thin film products. In connection with the Asset Sale and the refocusing of the
Company's business on thin film products, the Company anticipates that it will
significantly reduce the workforce at its Sunnyvale, California location. In
addition, James Healy will resign as President and Chief Executive Officer of
the Company and William W.R. Elder, the Company's Chairman, will return to a
full-time role as President and Chief Executive Officer.
ITEM 2.
PROPERTIES
The Company's executive offices, thin film manufacturing and R&D operations
are presently located in one building in Sunnyvale, California, totaling
approximately 100,500 square feet. The California facilities are occupied under
a lease expiring in October 2002, with a current annual rental expense of
approximately $680,000. Genus' Ion Technology Product operation is located in
Newburyport, Massachusetts. This facility, totaling approximately 70,000 square
feet, is occupied under a lease expiring in May 2017, with an annual rental
expense of approximately $845,000. The Company also leases sales and support
offices in Seoul, Korea; Tokyo, Japan; Evry, France; and Austin, Texas. The
Company owns substantially all of the machinery and equipment used in its
facilities. See Notes 3 and 8 of Notes to Consolidated Financial Statements. The
Company believes that its existing facilities and capital equipment are adequate
to meet its current requirements and that suitable additional or substitute
space will be available as needed.
ITEM 3.
LEGAL PROCEEDINGS
None.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
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PART II
ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK INFORMATION
The common stock of Genus, Inc., is traded in the over-the-counter market
under the NASDAQ symbol GGNS. The high and low last sales prices for 1997 and
1996, set forth below are as reported by the NASDAQ National Market System. At
February 27, 1998, the Company has 479 registered shareholders.
<TABLE>
<CAPTION>
1997 1996
------------------------- -----------------------
HIGH LOW HIGH LOW
------ ----------- ----------- -----
<S> <C> <C> <C> <C>
First Quarter............................................... $ 67/8 $ 35/8 $ 9 $ 55/8
Second Quarter.............................................. 67/16 31/8 12 53/4
Third Quarter............................................... 77/8 41/2 91/2 53/4
Fourth Quarter.............................................. 615/16 31/8 71/16 47/8
</TABLE>
The Company has not paid cash dividends on its common stock since inception,
and its Board of Directors presently intends to reinvest the Company's earnings,
if any, in its business. Additionally, the Company's line of credit prohibits
the payment of cash dividends. Accordingly, it is anticipated that no cash
dividends will be paid to holders of common stock in the foreseeable future.
ITEM 6.
SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYEE DATA)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............................................ $ 84,286 $ 82,509 $ 100,350 $ 63,616 $ 44,236
Gross profit......................................... 29,524 26,972 39,239 24,967 13,900
Gross profit as a percentage of sales................ 35% 33% 39% 39% 31%
Income (loss) from operations........................ (3,129) (11,458) 7,976 3,729 (6,974)
Net income (loss).................................... (19,336) (9,205) 19,282 4,177 (6,883)
Net income (loss) per share--basic................... (1.15) (0.56) 1.26 0.33 (0.57)
Net income (loss) per share--diluted................. (1.15) (0.56) 1.20 0.32 (0.57)
Cash and cash equivalents............................ 8,700 11,827 12,630 10,188 10,423
Total assets......................................... 76,738 89,132 95,247 54,997 45,205
Long-term obligations, less current portion.......... 971 1,260 1,034 523 1,042
Working capital...................................... 30,774 39,290 50,061 23,201 22,162
Shareholders' equity................................. 48,357 68,251 75,361 36,986 31,751
Backlog.............................................. 25,554 19,846 44,996 44,011 18,945
Number of employees.................................. 301 325 319 264 212
</TABLE>
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<PAGE>
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
STATEMENTS IN THIS REPORT WHICH EXPRESS "BELIEF", "ANTICIPATION" OR
"EXPECTATION" AS WELL AS OTHER STATEMENTS WHICH ARE NOT HISTORICAL FACT ARE
FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE
FORWARD LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR
ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" IN THIS
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND ELSEWHERE IN OR INCORPORATED BY REFERENCE INTO THIS REPORT. THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
1997 COMPARED TO 1996
The components of the Company's statements of income, expressed as
percentage of total revenue, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales....................................................... 100.0% 100.0% 100.0%
Costs and expenses:
Cost of goods sold............................................ 65.0 67.3 60.9
Research and development...................................... 14.6 17.7 12.2
Selling, general and administrative........................... 24.1 21.7 18.9
Special charge................................................ -- 7.2 --
--------- --------- ---------
Income (loss) from operations............................... (3.7) (13.9) 8.0
Other income, net............................................... (1.6) 0.1 0.3
--------- --------- ---------
Income (loss) before provision for income taxes............. (5.3) (13.8) 8.3
Provision for (benefit from) income taxes....................... 17.6 (2.7) (10.9)
--------- --------- ---------
Net income (loss)........................................... (22.9)% (11.1)% 19.2%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Net sales for the year ended December 31, 1997 were $84.3 million, compared
to net sales of $82.5 million in 1996. While 1997 sales showed a modest increase
on a year-to-year basis, the Company experienced volatility on a quarterly basis
during both years. Sales for the nine month period ended September 30, 1997
increased over the same period for 1996 as the industry and the Company
recovered from the slowdown in the DRAM market experienced during the latter
half of 1996. However, in the fourth quarter of 1997, the Company's sales fell
from the prior quarter due partially to the financial crisis in Asia that caused
some customers to push out their required delivery dates. Export sales accounted
for 74% of the Company's net sales in 1997, compared to 84% in 1996. Non-system
sales remained relatively flat year-to-year, accounting for 20% of revenue in
1997, compared to 23% in 1996.
During 1996, in response to the industry slowdown, the Company incurred $5.9
million in special charges during the third and fourth quarters as it
restructured its operations to attain profitability at a decreased sales level.
These charges reflected capacity cost reductions, including reductions in
headcount, write-off of some manufacturing equipment and increased inventory
reserves. During 1997, these measures resulted in lower expenses in cost of
goods sold and R&D.
Gross margin for the year ended December 31, 1997 was 35%, a two percentage
point improvement compared to 33% in 1996. Improvements in operating
efficiencies as a result of the restructuring were mitigated by pricing
pressures, especially from Asian customers. The Company's gross margins have
historically been affected by variations in average selling prices, changes in
the mix of product sales, unit
11
<PAGE>
shipment levels, the level of foreign sales and competitive pricing pressures.
The Company anticipates that these conditions will continue for the foreseeable
future in light of current market conditions.
As a percentage of net sales, R&D expenses for the year ended December 31,
1997 were 15%, compared to 18% in 1996. On a dollar basis, R&D expenses during
1997 decreased $2.3 million when compared to the same period in 1996, primarily
due to the restructuring. The Company serves markets that are highly competitive
and rapidly changing, and the Company believes that it must continue to maintain
its investment in R&D to develop competitive products. Accordingly, the Company
anticipates that R&D expenses may increase in the future.
Selling, General and Administrative ("SG&A") expenses were 24% of net sales
for the year ended December 31, 1997, compared to 22% of net sales for 1996.
Included in SG&A for 1997 was a write-off of an outstanding receivable from a
Malaysian customer. Absent this bad debt expense, SG&A expense would have
increased only approximately $300,000 or 2% from 1996.
In 1997, the Company had $1.4 million in other expense, compared to $53,000
in other income for the comparable period in 1996. As a result of the Asian
financial crisis and the devaluation of the Korean won, the Company incurred a
foreign exchange transaction loss of $1.1 million during the fourth quarter of
1997. Net interest expense for the year was $289,000 as compared to net interest
income of $124,000 for 1996 as a result of higher outstanding short-term
borrowings and lower levels of invested cash and cash equivalents during the
year.
During the fourth quarter of 1997, management determined that, based upon
the weight of available evidence as prescribed by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," it is more likely
than not that the net deferred tax asset at December 31, 1997 will not be
realized and has, therefore, provided a full valuation allowance against the net
deferred tax asset resulting in a tax provision of $14.8 million for the year.
Accordingly, the effective tax rate for the year ended December 31, 1997 was
330% compared to an effective tax rate of (19)% in 1996. The amount of the net
deferred tax asset that is realizable could be increased in the near term if
actual operating results differ significantly from current estimates.
Due to the current market conditions, the fluctuation in the Company's order
rates in the last 12 months, the Company's continued reliance on one customer
for a significant portion of its orders and that customer's recent announcements
to reduce or delay semiconductor equipment purchases, the slowdown in the Korean
semiconductor market, the continued competitive market environment for the
Company's products, and the historically cyclical nature of the semiconductor
equipment market, the Company remains cautious about the prospects for its
business over the next twelve months. The Company continues to make strategic
investments in new product development and manufacturing improvements with a
view of augmenting future performance by enhancing product offerings; however,
such investment may adversely affect short-term operating performance. The
Company is also continuing its efforts to implement productivity improvements
for future operating performance. The Company believes that the future economic
environment could continue to lengthen the order and sales cycles for its
products, causing it to continue to simultaneously book and ship some orders
during the same quarter. There can be no assurance that the Company's strategic
efforts will be successful.
1996 COMPARED TO 1995
Net sales for the year ended December 31, 1996 were $82.5 million, compared
to net sales of $100.4 million in 1995. The 18% decrease in net sales was due
primarily to lower tungsten CVD systems sales as a result of the overall
slowdown of the DRAM market during the last 12 months (particularly in Korea),
offset by greater ion implantation MeV system and non-system sales. Export sales
accounted for 84% of the Company's net sales in 1996, compared to 88% in 1995.
In 1996, non-system sales increased 13% when compared to non-system sales during
same period in 1995.
12
<PAGE>
Gross margin for the year ended December 31, 1996 was 33%, compared to 39%
in 1995. The decline in gross margin was primarily due to the shift in product
sales mix from CVD system sales, which have higher gross margins, to MeV system
sales, which have lower gross margins, lower absorption of manufacturing costs
as a result of lower sales volumes and higher service costs associated primarily
with the opening of Genus Korea, Ltd. The Company's gross margins have
historically been affected by variations in average selling prices, changes in
the mix of product sales, unit shipment levels, the level of foreign sales and
competitive pricing pressures.
As a percentage of net sales, R&D expenses for the year ended December 31,
1996 were 18%, compared to 12% in 1995. On a dollar basis, R&D expenses during
1996 increased $2.4 million when compared to the same period in 1995. This
increase was primarily due to investments in personnel, product development
material costs and engineering tools for new product development. The increase
in R&D expenses as a percentage of net sales was due to lower net sales in
addition to the increased R&D spending. The Company's R&D expenses in 1996 and
1995 are net of software capitalization costs of $400,000 and $900,000,
respectively.
SG&A expenses were 22% of net sales for the year ended December 31, 1996,
compared to 19% of net sales for 1995. The increase was primarily due to lower
net sales. On an absolute dollar basis, SG&A expenses for the year ended
December 31, 1996 decreased $1.1 million when compared to the same period in
1995. The decrease was due to lower payroll-related costs associated with the
reduction in force during the third and fourth quarters of 1996 and lower
commission and incentive expenses.
During the year ended December 31, 1996, the Company incurred special
charges of $5.9 million, relating primarily to capacity cost reductions in
association with the Company's reduction in personnel in the third and fourth
quarters of 1996, increased inventory reserves and the write-off of property and
equipment.
In 1996, the Company had $53,000 in other income, compared to $300,000 in
other income for the comparable period in 1995. This decrease was principally
due to lower interest income as a result of lower cash balances and higher
interest expense associated with lease financing. The effective tax rate for the
year ended December 31, 1996 was a 19% benefit compared to a 132% benefit for
the same period in 1995. The significant change in the effective tax rate was
due primarily to the recognition of lower amounts of deferred tax assets in
accordance with SFAS 109.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1997, the Company's cash and cash
equivalents decreased by $3.1 million. A total of $3.7 million was used in
operating activities, primarily due to a growth in accounts receivable and
inventories, partially offset by increased accounts payable. Fourth quarter
sales grew over the similar period in 1996, resulting in increased accounts
receivable. Inventory levels increased as several customer delivery dates were
rescheduled from the fourth quarter of 1997 to early 1998.
Capital expenditures during 1997, either by cash or capital lease
obligations, were $4.4 million and related primarily to acquisition of machinery
and equipment for the Company's R&D and Applications Laboratories and leasehold
improvements and equipment for the Ion Technology facility in Newburyport,
Massachusetts. The Company financed these expenditures through new or existing
lease lines. Furthermore, the Company anticipates that additional capital
expenditures, if any, during 1998 will be funded through existing working
capital or lease financing.
Proceeds from sale of common stock was $1.2 million and net short-term
borrowings increased $4.7 million from 1996.
The Company's primary source of funds at December 31, 1997 consisted of $8.7
million in cash and cash equivalents. The Company has a $10.0 million revolving
line of credit which is secured by substantially all of the assets of the
Company and expires in June 1998. At December 31, 1997, the Company had $2.8
13
<PAGE>
million in unused letters of credit and borrowings of $7.2 million outstanding
under the line of credit. Availability of borrowings is based on eligible
accounts receivable and inventory. Based on eligible accounts receivable and
inventory at December 31, 1997, the Company's borrowing capacity under the
revolving credit facility was in excess of $10 million. A monthly borrowing base
certificate is required by the bank. See Note 5 to Consolidated Financial
Statements.
The Company incurred operating losses during each of the two years in the
period ended December 31, 1997 and, as of December 31, 1997, had an accumulated
deficit of $48.9 million. Additionally, the Company's bank line of credit is
scheduled to expire in June 1998. The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going
concern and do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets and liabilities that
may result from the outcome of this uncertainty.
Assuming either (i) the Company fulfills the conditions and receives the
proceeds from the Series B Stock financing and is able to secure borrowings upon
renewal of its existing bank line of credit or under a new line of credit or
(ii) the Asset Sale is completed, the Company believes that its existing cash
resources together with funds from the Series B Stock financing and line of
credit or the Asset Sale will be sufficient to fund the Company's expected
working capital requirements for at least the next 12 months. However, the exact
amount and timing of these working capital requirements and the Company's
ability to continue as a going concern will be determined by numerous factors,
including the level of and gross margin on future sales, the payment terms
extended to and by the Company and the timing of capital expenditures.
Furthermore, there can be no assurance that funds will be received or become
available from the Series B Stock financing, line of credit or the Asset Sale,
or that these funds, together with the Company's existing cash resources, will
be sufficient to implement the Company's operating strategy or meet the
Company's other working capital requirements. Accordingly, the Company may be
required to seek additional equity or debt financing. There can be no assurance
that the Company would be able to obtain additional debt or equity financing, if
and when needed, on terms that the Company finds acceptable. Any additional
equity or debt financing may involve substantial dilution to the Company's
shareholders, restrictive covenants or high interest costs.
If the Company is unable to obtain sufficient funds to satisfy its cash
requirements, it will be forced to curtail operations, dispose of assets or seek
extended payment terms from its vendors. There can be no assurance that the
Company would be able to reduce expenses or successfully complete other steps
necessary to continue as a going concern. Such events would materially and
adversely affect the value of the Company's equity securities.
RISK FACTORS
CERTAIN SECTIONS OF MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS SET FORTH ABOVE IN
MANAGEMENT'S DISCUSSION AND ANALYSIS AND THIS RISK FACTORS SECTION. THE
DISCUSSION OF THESE FACTORS IS INCORPORATED BY THIS REFERENCE AS IF SAID
DISCUSSION WAS FULLY SET FORTH IN MANAGEMENT'S DISCUSSION AND ANALYSIS.
HISTORICAL PERFORMANCE. Although the Company had net income of $19.3
million and $4.2 million in the years ended December 31, 1995 and 1994, the
Company experienced losses of $19.3 million, $9.2 million, and $6.9 million for
the years ended December 31, 1997, 1996 and 1993, respectively. As a result of
the Company's inconsistent sales and operating results in recent years, there
can be no assurance that the Company will be able to sustain consistent future
revenue growth on a quarterly or annual basis, or that the Company will be able
to maintain consistent profitability on a quarterly or annual basis.
RELIANCE ON INTERNATIONAL SALES. Export sales accounted for approximately
74%, 84% and 88% of total net sales in the years ended 1997, 1996 and 1995,
respectively. In addition, net sales to South Korean
14
<PAGE>
customers accounted for approximately 50%, 59% and 63%, respectively, of total
net sales during the same periods. The Company anticipates that international
sales, including sales to South Korea, will continue to account for a
significant portion of net sales. As a result, a significant portion of the
Company's sales will be subject to certain risks, including unexpected changes
in regulatory requirements, tariffs and other barriers, political and economic
instability, difficulties in accounts receivable collection, difficulties in
managing distributors or representatives, difficulties in staffing and managing
foreign subsidiary operations and potentially adverse tax consequences. Although
the Company's foreign system sales are primarily denominated in U.S. dollars and
the Company does not engage in hedging transactions, the Company's foreign sales
are subject to the risks associated with unexpected changes in exchange rates,
which could have the effect of making the Company's products more or less
expensive. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
Further, the Company has a wholly owned South Korean subsidiary providing
service and support to the installed base of customers and whose functional
currency is the won. As a result of the devaluation of the won in the fourth
quarter of 1997, the Company incurred a foreign exchange loss of $1.1 million.
There can be no assurance that the Company will not incur currency losses or
gains in future quarters as the currency fluctuates.
A substantial portion of the Company's sales are in Asia. Recent turmoil in
the Asian financial markets has resulted in dramatic currency devaluations,
stock market declines, restriction of available credit and general financial
weakness. In addition, DRAM prices have fallen dramatically and may continue to
do so as some Asian IC manufacturers may be selling DRAMs at less than cost in
order to raise cash. These developments may affect the Company in several ways.
Currency devaluation may make dollar-denominated goods, such as the Company's,
more expensive for Asian clients. Asian manufacturers may limit capital
spending. Furthermore, the uncertainty of the DRAM market may cause
manufacturers everywhere to delay capital spending plans. These circumstances
may also affect the ability of Company customers to meet their payment
obligations, resulting in the cancellations or deferrals of existing orders and
the limitation of additional orders. Some of the Company's South Korean
customers have rescheduled their required delivery dates for orders previously
placed and have announced delays in the facilitization of their new
manufacturing areas. In addition, some portion of IC fabrication plant
construction has been subsidized by Asian governments. Financial turmoil may
weaken these governments' willingness to continue such subsidies. Such
developments could have a material adverse affect on the Company's business,
financial condition and results of operations.
RELIANCE ON A SMALL NUMBER OF CUSTOMERS AND CONCENTRATION OF CREDIT
RISK. The Company continued its efforts to expand its customer base in 1997 and
was successful, with new customers in Taiwan and North America. Historically,
the Company has relied on a limited number of customers for a substantial
portion of its net sales. In 1997, two customers, Samsung Electronics Company,
Ltd. and Innotech Corporation accounted for 47% and 17%, respectively, of the
Company's net sales. In 1996, these same two customers accounted for 53% and
18%, respectively, of the Company's net sales. Additionally, three customers,
Samsung Electronics Company, Ltd., Micron Technology, Inc. and Innotech
Corporation, accounted for an aggregate of 75% of accounts receivable at
December 31, 1997; and three customers, Samsung Electronics Company, Ltd.,
Innotech Corporation and Newport Wafer-Fab Ltd., accounted for an aggregate of
71% of accounts receivable at December 31, 1996. Because the semiconductor
manufacturing industry is concentrated in a limited number of generally larger
companies, the Company expects that a significant portion of its future product
sales will be concentrated within a limited number of customers. None of these
customers has entered into a long-term agreement requiring it to purchase the
Company's products. Furthermore, sales to certain of these customers may
decrease in the future when those customers complete their current semiconductor
equipment purchasing requirements for new or expanded fabrication facilities.
The loss of a significant customer or any reduction in orders from a significant
customer, including reductions due to customer departures from recent buying
patterns,
15
<PAGE>
market, economic or competitive conditions in the semiconductor industry or in
the industries that manufacture products utilizing ICs, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company is dependent on a small number of customers. Accordingly, the
Company is subject to concentration of credit risk. With the exception of the
write-off of one account in the fourth quarter of 1997, the Company has not
experienced material bad debt expense over the last four years. However, if a
major customer were to encounter financial difficulties and become unable to
meet its obligations, the Company would be adversely impacted.
CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY. The Company's business
depends upon the capital expenditures of semiconductor manufacturers, which in
turn depend on the current and anticipated market demand for ICs and products
utilizing ICs. The semiconductor industry is cyclical and experiences periodic
downturns, which have an adverse effect on the semiconductor industry's demand
for semiconductor manufacturing capital equipment. Semiconductor industry
downturns have adversely affected the Company's revenues, operating margins and
results of operations. There can be no assurance that the Company's revenues and
operating results will not continue to be materially and adversely affected by
future downturns in the semiconductor industry. In addition, the need for
continued investment in R&D, substantial capital equipment requirements and
extensive ongoing worldwide customer service and support capability limits the
Company's ability to reduce expenses. Accordingly, there is no assurance that
the Company will be able to attain profitability in the future.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's revenue and
operating results may fluctuate significantly from quarter to quarter. The
Company derives its revenue primarily from the sale of a relatively small number
of high-priced systems, many of which may be ordered and shipped during the same
quarter. The Company's results of operations for a particular quarter could be
adversely affected if anticipated orders, for even a small number of systems,
were not received in time to enable shipment during the quarter, anticipated
shipments were delayed or canceled by one or more customers or shipments were
delayed due to manufacturing difficulties. The Company's revenue and operating
results may also fluctuate due to the mix of products sold and the channel of
distribution.
COMPETITION. The semiconductor manufacturing capital equipment industry is
highly competitive. Genus faces substantial competition throughout the world.
The Company believes that to remain competitive, it will require significant
financial resources in order to offer a broader range of products, to maintain
customer service and support centers worldwide and invest in product and process
R&D. Many of the Company's existing and potential competitors have substantially
greater financial resources, more extensive engineering, manufacturing,
marketing and customer service and support capabilities, as well as greater name
recognition than the Company. The Company expects its competitors to continue to
improve the design and performance of their current products and processes and
to introduce new products and processes with improved price and performance
characteristics. If the Company's competitors enter into strategic relationships
with leading semiconductor manufacturers covering MeV or CVD products similar to
those sold by the Company, it would materially adversely affect the Company's
ability to sell its products to these manufacturers. There can be no assurance
that the Company will continue to compete successfully in the United States or
worldwide. The Company faces direct competition in CVD WSix from Applied
Materials, Inc. and Tokyo Electron, Ltd. In the MeV marketplace, the Company's
MeV ion implantation systems compete with MeV systems marketed by Eaton
Corporation. There can be no assurance that these or other competitors will not
succeed in developing new technologies, offering products at lower prices than
those of the Company or obtaining market acceptance for products more rapidly
than the Company.
DEPENDENCE ON NEW PRODUCTS AND PROCESSES. The Company believes that its
future performance will depend in part upon its ability to continue to enhance
its existing products and their process capabilities and to develop and
manufacture new products with improved process capabilities. As a result, the
Company expects to continue to invest in R&D. The Company also must manage
product transitions
16
<PAGE>
successfully, as introductions of new products could adversely affect sales of
existing products. There can be no assurance that the market will accept the
Company's new products or that the Company will be able to develop and introduce
new products or enhancements to its existing products and processes in a timely
manner to satisfy customer needs or achieve market acceptance. The failure to do
so could have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, if the Company is not
successful in the development of advanced processes or equipment for
manufacturers with whom it has formed strategic alliances, its ability to sell
its products to those manufacturers would be adversely affected.
PRODUCT CONCENTRATION; RAPID TECHNOLOGICAL CHANGE. Semiconductor
manufacturing equipment and processes are subject to rapid technological change.
The Company derives its revenue primarily from the sale of its MeV ion
implantation and WSix CVD systems. The Company estimates that the life cycle for
these systems is generally three to five years. The Company believes that its
future prospects will depend in part upon its ability to continue to enhance its
existing products and their process capabilities and to develop and manufacture
new products with improved process capabilities. As a result, the Company
expects to continue to make significant investments in R&D. The Company also
must manage product transitions successfully, as introductions of new products
could adversely affect sales of existing products. There can be no assurance
that future technologies, processes or product developments will not render the
Company's product offerings obsolete or that the Company will be able to develop
and introduce new products or enhancements to its existing and future processes
in a timely manner to satisfy customer needs or achieve market acceptance. The
failure to do so could adversely affect the Company's business, financial
condition and results of operations. Furthermore, if the Company is not
successful in the development of advanced processes or equipment for
manufacturers with whom it currently does business, its ability to sell its
products to those manufacturers would be adversely affected.
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. The Company's success depends
in part on its proprietary technology. While the Company attempts to protect its
proprietary technology through patents, copyrights and trade secret protection,
it believes that the success of the Company will depend on more technological
expertise, continuing the development of new systems, market penetration and
growth of its installed base and the ability to provide comprehensive support
and service to customers. There can be no assurance that the Company will be
able to protect its technology or that competitors will not be able to develop
similar technology independently. The Company currently has a number of United
States and foreign patents and patent applications. There can be no assurance
that any patents issued to the Company will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide competitive
advantages to the Company.
From time to time, the Company has received notices from third parties
alleging infringement of such parties' patent rights by the Company's products.
In such cases, it is the policy of the Company to defend against the claims or
negotiate licenses on commercially reasonable terms where considered
appropriate. However, no assurance can be given that the Company will be able to
negotiate necessary licenses on commercially reasonable terms, or at all, or
that any litigation resulting from such claims would not have a material adverse
effect on the Company's business and financial results.
DEPENDENCE ON KEY SUPPLIERS. Certain of the components and sub-assemblies
included in the Company's products are obtained from a single supplier or a
limited group of suppliers. Disruption or termination of these sources could
have a temporary adverse effect on the Company's operations. The Company
believes that alternative sources could be obtained and qualified to supply
these products, if necessary. Nevertheless, a prolonged inability to obtain
certain components could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON INDEPENDENT DISTRIBUTORS. The Company currently sells and
supports its MeV ion implantation and CVD products through direct sales and
customer support organizations in the U.S., Western Europe and South Korea and
through eight exclusive, independent sales representatives and
17
<PAGE>
distributors in the U.S., Europe, Japan, South Korea, Taiwan, Hong Kong, and
Singapore. The Company does not have any long-term contracts with its sales
representatives and distributors. Although the Company believes that alternative
sources of distribution are available, the disruption or termination of its
existing distributor relationships could have a temporary adverse effect on the
Company's business, financial condition and results of operations.
VOLATILITY OF STOCK PRICE; EFFECT OF CONVERSION OF SERIES A STOCK ON THE
STOCK PRICE. The Company's Common Stock has experienced substantial price
volatility, particularly as a result of quarter-to-quarter variations in the
actual or anticipated financial results of, or announcements by, the Company,
its competitors or its customers, announcements of technological innovations or
new products by the Company or its competitors, changes in earnings estimates by
securities analysts and other events or factors. Also, the stock market has
experienced extreme price and volume fluctuations which have affected the market
price of many technology companies, in particular, and which have often been
unrelated to the operating performance of these companies. These broad market
fluctuations, as well as general economic and political conditions in the United
States and the countries in which the Company does business, may adversely
affect the market price of the Company's Common Stock. Furthermore, trading in
the stock is thin and because the Series A Stock is convertible at a discount to
the market price, the holders of Series A Stock can convert the Series A Stock
into Common Stock and sell such Common Stock at a profit at any time, which may
have a depressive effect on the stock price. In addition, the occurrence of any
of the events described in these "Risk Factors" could have a material adverse
effect on such market price.
READINESS FOR YEAR 2000. Many existing computer systems and applications,
and other control devices, use only two digits to identify a year in the date
field, without considering the impact of the upcoming change in the century.
These computer systems and applications could fail or create erroneous results
unless corrected so that they can process data related to the year 2000. The
Company relies on its systems, applications and devices in operating and
monitoring all major aspects of its business, including financial systems (such
as general ledger, accounts payable and payroll modules), customer service,
infrastructure, embedded computer chips, networks and telecommunications
equipment and end products. The Company also relies on external systems of
business enterprises such as customers, suppliers, creditors, financial
organizations, and of governments both domestically and globally, directly for
accurate exchange of data and indirectly. During 1997, the Company started the
implementation of a new business system. One criteria for the selection of the
enterprise software was compliance with Year 2000 issues. Accordingly, the
Company's current estimate is that the costs associated with the Year 2000
issue, and the consequences of incomplete or untimely resolution of the Year
2000 issue, will not have a material adverse effect on the result of operations
or financial position of the Company in any given year. However, despite the
Company's efforts to address the Year 2000 impact on its internal systems, there
can be no assurance that the Company has fully identified such impact or that it
can resolve it without disruption of its business and without incurring
significant expense. In addition, even if the internal systems of the Company
are not materially affected by the Year 2000 issue, the Company could be
affected through disruption in the operation of the enterprises with which the
Company interacts. The Company has not contacted the entities with which it
interacts to determine whether such entities are addressing the Year 2000 issue.
18
<PAGE>
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................................ $ 8,700 $ 11,827
Accounts receivable (net of allowance for doubtful accounts of $1,097 in 1997 and $250 in
1996).................................................................................. 19,469 15,555
Inventories.............................................................................. 28,986 26,464
Other current assets..................................................................... 1,029 638
Current deferred taxes................................................................... -- 4,427
--------- ---------
Total current assets................................................................... 58,184 58,911
Property and equipment, net.............................................................. 15,276 15,345
Other assets, net........................................................................ 3,278 4,459
Noncurrent deferred taxes................................................................ -- 10,417
--------- ---------
$ 76,738 $ 89,132
--------- ---------
--------- ---------
LIABILITIES
Current Liabilities:
Short-term bank borrowings............................................................... $ 7,200 $ 2,500
Accounts payable......................................................................... 8,723 5,304
Accrued expenses......................................................................... 10,613 10,808
Current portion of long-term debt and capital lease obligations.......................... 874 1,009
--------- ---------
Total current liabilities.............................................................. 27,410 19,621
Long-term debt and capital lease obligations, less current portion......................... 971 1,260
--------- ---------
Total liabilities...................................................................... $ 28,381 $ 20,881
--------- ---------
Commitments (Note 8)
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized, 2,000,000 shares;
Issued and outstanding, none........................................................... -- --
Common stock, no par value:
Authorized 50,000,000 shares;
Issued and outstanding, 17,120,628 shares (1997) and
16,723,927 shares (1996)............................................................... 99,149 97,915
Accumulated deficit...................................................................... (48,863) (29,527)
Cumulative translation adjustment........................................................ (1,929) (137)
--------- ---------
Total shareholders' equity............................................................. 48,357 68,251
--------- ---------
$ 76,738 $ 89,132
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
GENUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales..................................................................... $ 84,286 $ 82,509 $ 100,350
Costs and expenses:
Cost of goods sold.......................................................... 54,762 55,537 61,111
Research and development.................................................... 12,327 14,639 12,259
Selling, general and administrative......................................... 20,326 17,901 19,004
Special charge.............................................................. -- 5,890 --
---------- ---------- ----------
Income (loss) from operations............................................. (3,129) (11,458) 7,976
Other income (expense), net................................................... (1,363) 53 327
---------- ---------- ----------
Income (loss) before provision for (benefit from) income taxes.............. (4,492) (11,405) 8,303
Provision for (benefit from) income taxes..................................... 14,844 (2,200) (10,979)
---------- ---------- ----------
Net income (loss)......................................................... $ (19,336) $ (9,205) $ 19,282
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per share--basic............................................ $ (1.15) $ (0.56) $ 1.26
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per share--diluted.......................................... $ (1.15) $ (0.56) $ 1.20
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
GENUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON ACCUMULATED TRANSLATION
STOCK DEFICIT ADJUSTMENT TOTAL
--------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Balances, January 1, 1995....................................... $ 76,590 $ (39,604) $ -- $ 36,986
Issuance of 2,539,018 shares of common stock under private
placement offering.......................................... 16,222 -- -- 16,222
Issuance of 542,450 shares of common stock under stock option
plan........................................................ 1,161 -- -- 1,161
Tax benefit on exercise of stock options...................... 750 -- -- 750
Issuance of 269,043 shares of common stock under employee
stock purchase plan......................................... 960 -- -- 960
Net income.................................................... -- 19,282 -- 19,282
--------- ------------ ----------- ----------
Balances, December 31, 1995..................................... 95,683 (20,322) -- 75,361
Issuance of 310,471 shares of common stock under stock option
plan........................................................ 1,125 -- -- 1,125
Issuance of 249,917 shares of common stock under employee
stock purchase plan......................................... 1,107 -- -- 1,107
Net loss...................................................... -- (9,205) -- (9,205)
Translation adjustment........................................ -- -- (137) (137)
--------- ------------ ----------- ----------
Balances, December 31, 1996..................................... 97,915 (29,527) (137) 68,251
Issuance of 124,199 shares of common stock under stock option
plan........................................................ 364 -- -- 364
Issuance of 272,502 shares of common stock under employee
stock purchase plan......................................... 870 -- -- 870
Net loss...................................................... -- (19,336) -- (19,336)
Translation adjustment........................................ -- -- (1,792) (1,792)
--------- ------------ ----------- ----------
Balances, December 31, 1997..................................... $ 99,149 $ (48,863) $ (1,929) $ 48,357
--------- ------------ ----------- ----------
--------- ------------ ----------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
GENUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................ $ (19,336) $ (9,205) $ 19,282
Adjustments to reconcile to net cash from operating activities:
Special charge............................................................. -- 5,890 --
Loss on disposal of leasehold improvements................................. -- -- 261
Depreciation and amortization.............................................. 5,073 6,945 4,244
Provision for doubtful accounts............................................ 2,930 -- --
Deferred taxes............................................................. 14,844 (2,534) (11,560)
Changes in assets and liabilities:
Accounts receivable...................................................... (7,181) 11,191 (11,627)
Inventories.............................................................. (2,998) (4,509) (9,760)
Other current assets..................................................... (391) (865) 32
Accounts payable......................................................... 3,419 (1,825) 1,271
Accrued expenses......................................................... (543) (1,094) 4,417
Other, net............................................................... 527 (1,545) (701)
---------- --------- ----------
Net cash provided by (used in) operating activities.................... (3,656) 2,449 (4,141)
---------- --------- ----------
Cash flows from investing activities:
Acquisition of property and equipment........................................ (3,835) (6,611) (5,594)
Capitalization of software development costs................................. -- (360) (937)
---------- --------- ----------
Net cash used in investing activities.................................. (3,835) (6,971) (6,531)
---------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock....................................... 1,234 2,232 18,343
Proceeds from short-term bank borrowings..................................... 50,290 4,000 --
Payment of short-term bank borrowings........................................ (45,590) (1,500) (3,800)
Payments of long-term debt................................................... (939) (990) (1,429)
---------- --------- ----------
Net cash provided by financing activities.............................. 4,995 3,742 13,114
---------- --------- ----------
Effect of exchange rate changes on cash........................................ (631) (23) --
Net increase (decrease) in cash and cash equivalents........................... (3,127) (803) 2,442
Cash and cash equivalents, beginning of year................................... 11,827 12,630 10,188
---------- --------- ----------
Cash and cash equivalents, end of year......................................... $ 8,700 $ 11,827 $ 12,630
---------- --------- ----------
---------- --------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest..................................................................... $ 445 $ 210 $ 172
Income taxes................................................................. 94 105 209
Non-cash investing activities:
Purchase of property and equipment under long-term debt obligations.......... 515 1,544 1,416
Tax benefit on exercise of stock options..................................... -- -- 750
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Genus, Inc. develops, manufactures, markets and services advanced thin film
deposition and high energy MeV ion implantation equipment used in the
fabrication of advanced semiconductor integrated circuits. The Company's
products are marketed worldwide either directly to end-users or through
exclusive sales representative arrangements. In January 1996, the Company opened
a subsidiary in South Korea to provide sales and service support to Korean
customers. In April 1997, the Company's Japanese subsidiary commenced
significant operations, providing sales and service support to Japanese
customers. The Company's customers include semiconductor manufacturers located
throughout the United States, Europe and in the Pacific Rim including Japan,
South Korea and Taiwan. Genus conducts its business within one industry segment.
The following is a summary of Genus' significant accounting policies.
BASIS OF PRESENTATION
The Company incurred operating losses during each of the two years in the
period ended December 31, 1997 and, as of December 31, 1997, had an accumulated
deficit of $48,863. Additionally, the Company's bank line of credit is scheduled
to expire in June 1998. The accompanying consolidated financial statements have
been prepared assuming the Company will continue as a going concern and do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets and liabilities that may result from
the outcome of this uncertainty.
In February 1998, the Company issued equity securities through a private
placement of convertible preferred stock ("Series A Stock") for gross proceeds
of $5,000. Upon fulfillment of certain conditions, the same investors in the
Company's Series A Stock have committed to providing additional equity
financing. Assuming the Company fulfills these conditions and receives the
proceeds from this additional preferred stock financing and assuming the Company
is able to secure borrowings upon renewal of its existing bank line of credit or
under a new line of credit, the Company believes that its existing cash
resources together with funds from this additional preferred stock financing and
line of credit will be sufficient to fund the Company's expected working capital
requirements for at least the next 12 months. However, the exact amount and
timing of these working capital requirements and the Company's ability to
continue as a going concern will be determined by numerous factors, including
the level of and gross margin on future sales, the payment terms extended to and
by the Company and the timing of capital expenditures. Furthermore, there can be
no assurance that funds will be received or become available from the additional
preferred stock financing or line of credit or that these funds, together with
the Company's existing cash resources, will be sufficient to implement the
Company's operating strategy or meet the Company's other working capital
requirements. Accordingly, the Company may be required to seek additional equity
or debt financing. There can be no assurance that the Company would be able to
obtain additional debt or equity financing, if and when needed, on terms that
the Company finds acceptable. Any additional equity or debt financing may
involve substantial dilution to the Company's shareholders, restrictive
covenants or high interest costs.
If the Company is unable to obtain sufficient funds to satisfy its cash
requirements, it will be forced to curtail operations, dispose of assets or seek
extended payment terms from its vendors. There can be no assurance that the
Company would be able to reduce expenses or successfully complete other steps
necessary to continue as a going concern. Such events would materially and
adversely affect the value of the Company's equity securities.
23
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Genus, Inc.
and its wholly owned subsidiaries after elimination of significant intercompany
accounts and transactions.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximate estimated fair
value because of the short maturity of those financial instruments. Based on
rates currently available to the Company for debt with similar terms and
remaining maturities, the carrying amounts of debt approximate estimated fair
values.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and trade
receivables. The Company places its cash with high credit quality financial
institutions located in the United States. The Company does not require
collateral from its customers and maintains an allowance for credit losses.
Three customers accounted for an aggregate of 75% and 71% of accounts
receivable at December 31, 1997 and 1996, respectively. South Korean and
Japanese customers accounted for an aggregate of 70% and 60% of accounts
receivable at December 31, 1997 and 1996, respectively.
INVENTORIES
Inventories are stated at the lower of cost or market, using standard costs
that approximate actual costs, under the first-in, first-out method.
LONG-LIVED ASSETS
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives, which range from three
to ten years. Leasehold improvements are amortized using the straight-line
method over their estimated useful lives or the remaining lease term, whichever
is less.
Other assets include goodwill and software development costs and are stated
at cost. Goodwill represents the cost in excess of an acquired business and is
amortized on a straight-line basis over 15 years. Software development costs
represent costs incurred subsequent to establishing the technological
feasibility of software products and are amortized over the expected life of the
products, estimated to be three years.
Whenever events or changes in circumstances indicate that the carrying
amounts of long-lived assets and goodwill related to those assets may not be
recoverable, the Company estimates the future cash flows, undiscounted and
without interest charges, expected to result from the use of those assets and
their
24
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
eventual disposition. If the sum of the future cash flows is less than the
carrying amounts of those assets, the Company recognizes an impairment loss
based on the excess of the carrying amounts over the fair values of the assets.
REVENUE RECOGNITION
Revenue related to systems is recognized upon shipment or, prior to
shipment, upon completion of customer source inspection and factory acceptance
of the system where risk of loss and title to the system passes to the customer.
A provision for the estimated future cost of system installation, warranty and
commissions is recorded when revenue is recognized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Company accounts for income taxes using a method that requires deferred
tax assets to be computed annually on an asset and liability method and adjusted
when new tax laws or rates are enacted. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized. Income tax expense (benefit) is the tax payable (refundable) for the
period plus or minus the change in deferred tax assets and liabilities during
the period.
FOREIGN CURRENCY
The Company has foreign sales and service operations. With respect to all
foreign subsidiaries excluding South Korea and Japan, the functional currency is
the U.S. dollar, and transaction and translation gains and losses are included
in net income (loss) and have not been material in any year presented. The
functional currency of the Company's South Korean subsidiary is the won, and the
functional currency of the Company's Japanese subsidiary is the yen. The
translation from the applicable foreign currency to U.S. dollars is performed
for balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using the weighted average
exchange rate during the period. Adjustments resulting from such translation are
reflected as a separate component of stockholders' equity. Gains or losses
resulting from foreign currency transactions, including intercompany
transactions, are included in the results of operations.
NET INCOME (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") during the fourth quarter of 1997 and,
accordingly, has restated all prior-period net income (loss) per share data
presented. Pursuant to the requirements of SFAS 128, the Company has computed
and presented net income (loss) per share under two methods, basic and diluted.
Basic net income (loss)
25
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
per share is computed by dividing income (loss) available to common shareholders
by the weighted average number of common shares outstanding for the period.
Diluted net income (loss) per share is computed by dividing income (loss)
available to common shareholders, adjusted for convertible preferred dividends
and after-tax interest expense on convertible debt, if any, by the sum of the
weighted average number of common shares outstanding and potential common shares
(when dilutive).
NOTE 2. INVENTORIES
Inventories comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Raw materials and parts................................................. $ 15,210 $ 14,776
Work in process......................................................... 6,879 6,847
Finished goods.......................................................... 6,897 4,841
--------- ---------
$ 28,986 $ 26,464
--------- ---------
--------- ---------
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Equipment............................................................. $ 19,510 $ 16,145
Demonstration equipment............................................... 14,352 14,047
Furniture and fixtures................................................ 2,645 2,631
Leasehold improvements................................................ 6,631 6,900
---------- ----------
43,138 39,723
Less accumulated depreciation and amortization........................ (28,833) (24,669)
---------- ----------
14,305 15,054
Construction in process............................................... 971 291
---------- ----------
$ 15,276 $ 15,345
---------- ----------
---------- ----------
</TABLE>
Equipment includes $3,745 and $3,479 of assets under capital leases at
December 31, 1997 and 1996, respectively. Accumulated amortization on these
assets is $2,628 and $1,402 at December 31, 1997 and 1996, respectively.
26
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4. OTHER ASSETS
Other assets comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Goodwill................................................................. $ 3,802 $ 3,802
Software development costs............................................... 1,347 1,347
--------- ---------
5,149 5,149
Accumulated amortization--goodwill....................................... (2,675) (2,421)
Accumulated amortization--software development costs..................... (980) (579)
--------- ---------
1,494 2,149
Other.................................................................... 1,784 2,310
--------- ---------
$ 3,278 $ 4,459
--------- ---------
--------- ---------
</TABLE>
Amortization expense for software development costs was $401, $507 and $376
in 1997, 1996 and 1995, respectively.
NOTE 5. LINE OF CREDIT
The Company has a revolving line of credit agreement with a bank that
provides for maximum borrowings of $10,000 and expires in June 1998. Borrowings
under the line of credit, which are collateralized by substantially all of the
assets of the Company, bear interest at the bank's prime rate minus .25% (8.25%
at December 31, 1997) or LIBOR plus 2% (7.625% at December 31, 1997). The
agreement requires the Company to comply with certain financial covenants and
restricts the payment of dividends. At December 31, 1997, the Company had $2,800
in unused letters of credit and borrowings of $7,200 outstanding under the line
of credit. Availability of borrowings is based on eligible accounts receivable
and inventory. Based on eligible accounts receivable and inventory at December
31, 1997, the Company's borrowing capacity under the revolving credit facility
was in excess of $10,000. A monthly borrowing base certificate is required by
the bank.
NOTE 6. ACCRUED EXPENSES
Accrued expenses comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
System installation and warranty........................................ $ 3,741 $ 4,884
Accrued commissions and incentives...................................... 2,062 1,344
Accrued payroll and related items....................................... 1,264 1,003
Other................................................................... 3,546 3,577
--------- ---------
$ 10,613 $ 10,808
--------- ---------
--------- ---------
</TABLE>
27
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt comprises the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Capital lease obligations with interest rates ranging from 4.9-- 15.6%.... $ 1,737 $ 2,153
Mortgage loan payable in monthly installments through October 2000 at
9 1/4% interest per annum and collateralized by a building.............. 108 116
--------- ---------
1,845 2,269
Less amounts due within one year.......................................... (874) (1,009)
--------- ---------
$ 971 $ 1,260
--------- ---------
--------- ---------
</TABLE>
The future aggregate payments of long-term debt and capital lease
obligations are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998................................................................ $ 954
1999................................................................ 543
2000................................................................ 358
2001................................................................ 110
---------
1,965
Less amounts representing interest on long-term debt and capital
lease obligations................................................. (120)
---------
Principal payments and present value of minimum capital lease
obligations....................................................... $ 1,845
---------
---------
</TABLE>
Certain of the capital lease agreements require the Company to comply with
specific financial covenants and to pay stipulated amounts upon default or
termination prior to the expiration of the basic lease terms.
NOTE 8. LEASE COMMITMENTS
The Company leases certain of its facilities and various office equipment
under operating leases expiring through 2017. The Company is responsible for
property taxes, insurance and maintenance under the facility leases. Certain of
these leases contain renewal options.
28
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8. LEASE COMMITMENTS (CONTINUED)
At December 31, 1997, minimum lease payments required under these operating
leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998............................................................... $ 1,854
1999............................................................... 1,585
2000............................................................... 1,600
2001............................................................... 1,681
2002............................................................... 1,584
Thereafter......................................................... 10,215
---------
$ 18,519
---------
---------
</TABLE>
Rent expense for 1997, 1996 and 1995 was $2,215, $2,218 and $1,251,
respectively.
29
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9. CAPITAL STOCK
NET INCOME (LOSS) PER SHARE
A reconciliation of the numerator and denominator of basic and diluted
income (loss) per share is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Numerator-Basic:
Net income (loss)......................................... $ (19,336) $ (9,205) $ 19,282
---------- --------- ---------
---------- --------- ---------
Denominator-Basic:
Weighted average common stock outstanding................. 16,860 16,423 15,334
---------- --------- ---------
---------- --------- ---------
Basic net income (loss) per share........................... $ (1.15) $ (0.56) $ 1.26
---------- --------- ---------
---------- --------- ---------
Numerator-Diluted:
Net income (loss)......................................... $ (19,336) $ (9,205) $ 19,282
---------- --------- ---------
---------- --------- ---------
Denominator-Diluted:
Weighted average common stock outstanding................. 16,860 16,423 15,334
Effect of dilutive securities:
Stock options........................................... -- -- 729
---------- --------- ---------
16,860 16,423 16,063
---------- --------- ---------
---------- --------- ---------
Diluted net income (loss) per share......................... $ (1.15) $ (0.56) $ 1.20
---------- --------- ---------
---------- --------- ---------
</TABLE>
Stock options to purchase 1,979,000 shares of common stock were outstanding
in 1997 on a weighted average basis, but were not included in the computation of
diluted loss per share because the Company has a net loss for 1997.
Stock options to purchase 1,838,000 shares of common stock were outstanding
in 1996 on a weighted average basis, but were not included in the computation of
diluted loss per share because the Company has a net loss for 1996.
Stock options to purchase 152,000 shares of common stock were outstanding in
1995 on a weighted average basis, but were not included in the computation of
diluted income per share because the exercise price was greater than the average
market value of the common shares.
PRIVATE PLACEMENT OFFERING
On February 17, 1995, the Company sold 2,539,018 shares of common stock for
$16,200 through a private placement offering.
STOCK OPTION PLAN
The Company has a 1991 Incentive Stock Option Plan (the "Plan") under which
the Board of Directors may issue incentive and nonstatutory stock options. The
Plan expires ten years after adoption and the Board of Directors has the
authority to determine to whom options will be granted, the number of
30
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9. CAPITAL STOCK (CONTINUED)
shares, the term and exercise price. The options are exercisable at times and
increments as specified by the Board of Directors, and expire five years from
date of grant. These options generally vest over a three-year period. At
December 31, 1997, the Company had reserved 3,503,006 shares of common stock for
issuance under the Plan. A total of 785,340 shares remained available for future
grants at December 31, 1997. At December 31, 1995, 351,866 options were
exercisable at a weighted average exercise price of $3.28. At December 31, 1996,
492,729 options were exercisable at a weighted average exercise price of $5.56.
At December 31, 1997, 789,670 options were exercisable at a weighted average
exercise price of $6.50.
Activity under the Plan is set forth in the table below:
<TABLE>
<CAPTION>
WEIGHTED
OUTSTANDING AVERAGE
SHARES OPTIONS PRICE EXERCISE
(IN 000'S) PER SHARE TOTAL PRICE
----------- ---------------- --------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1995....................................... 1,279 $ 1.25 to $6.88 $ 3,682 $ 2.88
Granted...................................................... 1,277 7.75 to 15.63 12,084 9.46
Exercised.................................................... (542) 1.25 to 6.88 (1,161) 2.14
Terminated................................................... (428) 1.25 to 15.63 (4,658) 10.88
----- ---------------- --------- -----
Balance, December 31, 1995..................................... 1,586 1.75 to 15.63 9,947 6.27
Granted...................................................... 1,027 5.94 to 8.38 6,705 6.53
Exercised.................................................... (310) 1.75 to 8.63 (1,125) 3.63
Terminated................................................... (213) 2.75 to 15.63 (1,776) 8.34
----- ---------------- --------- -----
Balance, December 31, 1996..................................... 2,090 1.75 to 8.63 13,751 6.58
Granted...................................................... 537 3.88 to 6.94 2,707 5.04
Exercised.................................................... (124) 1.75 to 6.13 (364) 2.94
Terminated................................................... (652) 2.25 to 8.63 (4,473) 6.86
----- ---------------- --------- -----
Balance, December 31, 1997..................................... 1,851 $ 2.25 to $8.63 $ 11,621 6.28
----- ---------------- --------- -----
----- ---------------- --------- -----
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which also requires that
the information be determined as if the Company had accounted for its employee
stock options granted subsequent to December 31, 1995 under the fair value
method prescribed by SFAS 123.
31
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9. CAPITAL STOCK (CONTINUED)
The fair value of these options was estimated at the date of grant using a
Black-Scholes single option pricing model with the following weighted average
assumptions for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Risk free interest rates................................. 6.220% 6.070% 6.320%
Expected life............................................ 3.5 years 3.5 years 3.5 years
Expected volatility...................................... 77.7% 77.7% 77.7%
Expected dividend yield.................................. --% --% --%
</TABLE>
The weighted average fair value of options granted in 1997, 1996 and 1995
was $2.92, $3.81 and $4.58, respectively.
Under the 1989 Employee Stock Purchase Plan, the Company does not recognize
compensation cost related to employee purchase rights under the Plan. To comply
with the pro forma reporting requirements of SFAS 123, compensation cost is
estimated for the fair value of the employees' purchase rights using the
Black-Scholes model with the following assumptions for those rights granted in
1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Risk free interest rates................................. 5.630% 5.340% 6.250%
Expected life............................................ 0.5 years 0.5 years 0.5 years
Expected volatility...................................... 77.7% 77.7% 77.7%
Expected dividend yield.................................. --% --% --%
</TABLE>
The weighted average fair value of those purchase rights granted in 1997,
1996 and 1995 was $1.80, $3.26 and $3.88, respectively.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS 123, the Company's net income (loss)
and basic and diluted net income (loss) per share would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Pro forma net income (loss).............................. $ (21,537) $ (12,053) $ 17,858
Pro forma net income (loss) per share--basic............. $ (1.28) $ (0.73) $ 1.16
Pro forma net income (loss) per share--diluted........... $ (1.28) $ (0.73) $ 1.13
</TABLE>
The above pro forma effects on net income (loss) may not be representative
of the effects on future results as options granted typically vest over several
years and additional option grants are expected to be made in future years.
32
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9. CAPITAL STOCK (CONTINUED)
The options outstanding and currently exercisable by exercise price under
the option plan at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ----------------------------------
RANGE OF NUMBER WEIGHTED AVERAGE NUMBER
EXERCISE OUTSTANDING REMAINING WEIGHTED AVERAGE OUTSTANDING WEIGHTED AVERAGE
PRICES (IN 000'S) CONTRACTUAL LIFE EXERCISE PRICE (IN 000'S) EXERCISE PRICE
- -------------- ------------- ------------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
$2.25-$5.25 538 3.12 $ 4.24 192 $ 3.66
$5.56-$6.13 580 3.67 6.01 202 5.99
$6.38-$8.38 486 2.93 7.70 229 7.77
$8.63-$8.63 247 2.95 8.55 167 8.63
----- ---
$2.25-$8.63 1,851 3.22 $ 6.28 790 $ 6.50
----- ---
----- ---
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company has reserved a total of 1,750,000 shares of common stock for
issuance under a qualified stock purchase plan, which provides substantially all
Company employees with the right to acquire shares of the Company's common stock
through payroll deductions. Under the plan, the Company's employees, subject to
certain restrictions, may purchase shares of common stock at the lesser of 85%
of fair market value at either the beginning of each two-year offering period or
the end of each six-month purchase period within the two-year offering period.
At December 31, 1997, 1,625,086 shares have been issued under the plan.
COMMON STOCK PURCHASE RIGHTS
In July 1990, the Company distributed a dividend to shareholders comprised
of a right to purchase one share of common stock (a "Right") for each
outstanding share of common stock of the Company they hold. These rights do not
become exercisable or transferable apart from the common stock until the
Distribution Date which is either the tenth day after a person or group (a)
acquires beneficial ownership of 20% or more of the Company's common stock or
(b) announces a tender or exchange offer, the consummation of which would result
in ownership by a person or group of 30% or more of the Company's common stock.
After the Distribution Date, each Right will entitle the holder to purchase from
the Company one share of common stock at a price of $28.00 per share.
If the Company is acquired in a merger or other business combination
transaction, or if 50% or more of its consolidated assets or earnings power is
sold, each Right will entitle the holder to purchase at the exercise price that
number of shares of the acquiring company having a then current market value of
two times the exercise price of the Right. In the event that the Company is the
surviving corporation in a merger and the Company's common stock remains
outstanding, or in the event that an acquiring party engages in certain
self-dealing transactions, each Right not owned by the acquiring party will
entitle the holder to purchase at the exercise price that number of shares of
the Company's common stock having a then current market value of two times the
exercise price of the Right.
The Rights are redeemable at the Company's option for $.01 per Right prior
to becoming exercisable, may be amended at the Company's option on or prior to
the Distribution Date and expire on July 3, 2000.
33
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 10. EMPLOYEE BENEFIT PLAN
During 1988, the Company adopted the Genus, Inc. 401(k) Plan (the "Benefit
Plan") to provide retirement and incidental benefits for eligible employees. The
Benefit Plan provides for Company contributions as determined by the Board of
Directors which may not exceed 6% of the annual aggregate salaries of those
employees eligible for participation. In 1997, 1996 and 1995, the Company made
$92, $87 and $61, respectively, in contributions to the Benefit Plan.
NOTE 11. SPECIAL CHARGE
During 1996, the Company incurred special charges of $5,890 relating to $860
in payroll costs associated with two reductions in workforce, $3,332 in
inventory write-downs, $1,253 in demonstration equipment write-downs, and $445
in capitalized software and other write-downs.
NOTE 12. OTHER INCOME (EXPENSE), NET
Other income (expense), net, comprises the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest income................................................ $ 156 $ 334 $ 790
Interest expense............................................... (445) (210) (172)
Loss on disposal of leasehold improvements..................... -- -- (261)
Foreign exchange............................................... (1,107) -- --
Other, net..................................................... 33 (71) (30)
--------- --------- ---------
$ (1,363) $ 53 $ 327
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 13. INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1997, 1996 and
1995 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Federal:
Current................................................... $ -- $ -- $ 431
Deferred.................................................. 14,004 (2,343) $ (11,036)
--------- --------- ----------
14,004 (2,343) (10,605)
--------- --------- ----------
State:
Current................................................... -- -- 150
Deferred.................................................. 840 (191) (524)
--------- --------- ----------
840 (191) (374)
--------- --------- ----------
Foreign:
Current................................................... -- 334 --
--------- --------- ----------
$ 14,844 $ (2,200) $ (10,979)
--------- --------- ----------
--------- --------- ----------
</TABLE>
34
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 13. INCOME TAXES (CONTINUED)
The Company's effective tax rate for the years ended December 31, 1997, 1996
and 1995 differs from the U.S. federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ---------
<S> <C> <C> <C>
Federal income tax at statutory rate................................ (34)% (35)% 34%
Change in valuation allowance....................................... 372 13 (173)
Alternative minimum tax............................................. -- -- 5
State income taxes.................................................. -- -- 2
Foreign income taxes................................................ -- 3 --
Other............................................................... (8) -- --
--
--- ---
330% (19)% (132)%
--
--
--- ---
--- ---
</TABLE>
The components of the net deferred tax asset comprise the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards...................................... $ 13,097 $ 9,447
Tax credit carryforward............................................... 1,867 1,288
Inventory, accounts receivable and other reserves..................... 401 1,835
Non-deductible accrued expenses....................................... 1,152 1,264
Other reserves........................................................ -- 1,245
Depreciation and amortization......................................... 215 (235)
Valuation allowance................................................... (16,732) --
--------- ---------
Net deferred tax assets................................................. $ -- $ 14,844
--------- ---------
--------- ---------
</TABLE>
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the financial statements in different years than recognized in the
tax returns.
At December 31, 1997, the Company had the following income tax carryforwards
available:
<TABLE>
<CAPTION>
EXPIRATION
TAX REPORTING DATES
------------- ---------------
<S> <C> <C>
U.S. regular tax operating losses............................ $ 36,700 2005-2012
U.S. business tax credits.................................... $ 1,867 2002-2009
State net operating losses................................... $ 11,800 1998-2003
</TABLE>
Based on the weight of available evidence as prescribed by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), management has determined that it is more likely than not that the net
deferred tax asset at December 31, 1997 will not be realized and has, therefore,
provided a full valuation allowance against the net deferred tax asset. The
amount of the net deferred tax asset that is realizable could be increased in
the near term if actual operating results differ significantly from current
estimates. The utilization of the Company's net operating losses may be limited
upon certain changes in ownership.
35
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14. SEGMENT INFORMATION
The Company is engaged in the design, manufacture, marketing and servicing
of advanced thin film deposition systems and MeV ion implantation systems used
primarily in the semiconductor manufacturing industry. The Company's sales are
primarily generated from two products, CVD WSix and MeV ion implantation
systems. The Company's CVD system is designed for the deposition of WSix to
create multiple interconnect layers on ICs. The MeV ion implantation system
drives electrically charged ions into the surface of a silicon wafer to convert
the electrical characteristics of the wafer. Both products are primarily used in
the manufacturing of DRAMs. Its business serves the semiconductor manufacturing
industry only.
EXPORT SALES
Export sales (principally from sales to customers in the Far East and
Europe) for 1997, 1996 and 1995 represented 74%, 84% and 88% of net sales,
respectively.
DOMESTIC AND FOREIGN OPERATIONS
Substantially all of the Company's operations were located domestically in
1995. Revenues, income (loss) from operations, and identifiable assets for the
Company's foreign and domestic operations for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Sales to unaffiliated customers:
Domestic operations............................................................ $ 73,182 $ 80,827
Foreign operations............................................................. 11,104 1,682
--------- ----------
$ 84,286 $ 82,509
--------- ----------
--------- ----------
Sales between geographic areas:
Domestic operations............................................................ $ 5,864 $ 848
Foreign operations............................................................. 1,269 2,837
Eliminations and other......................................................... (7,133) (3,685)
--------- ----------
$ -- $ --
--------- ----------
--------- ----------
Income (loss) from operations:
Domestic operations............................................................ $ (4,897) $ (12,631)
Foreign operations............................................................. 1,464 1,152
Eliminations and other......................................................... 304 21
--------- ----------
$ (3,129) $ (11,458)
--------- ----------
--------- ----------
Identifiable assets:
Domestic operations............................................................ $ 75,975 $ 87,932
Foreign operations............................................................. 4,363 2,370
Eliminations and other......................................................... (3,600) (1,170)
--------- ----------
$ 76,738 $ 89,132
--------- ----------
--------- ----------
</TABLE>
36
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14. SEGMENT INFORMATION (CONTINUED)
MAJOR CUSTOMERS
In 1997, two customers, Samsung Electronics Company, Ltd. and Innotech
Corporation, accounted for 47% and 17%, respectively, of net sales, and in 1996,
these same two customers accounted for 53% and 18%, respectively, of net sales.
In 1995, Samsung Electronics Company, Ltd. accounted for 63% of net sales.
NOTE 15. INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1997 QUARTERS ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 *DECEMBER 31
----------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales..................................................... $ 19,681 $ 19,351 $ 24,375 $ 20,879
Gross profit.................................................. 7,368 7,811 8,351 5,994
Net income (loss)............................................. 181 296 512 (20,325)
Net income (loss) per share-basic and diluted................. 0.01 0.02 0.03 (1.20)
</TABLE>
<TABLE>
<CAPTION>
1996 QUARTERS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales...................................................... $ 26,360 $ 25,095 $ 13,892 $ 17,162
Gross profit................................................... 9,438 9,176 3,399 4,959
Net income (loss).............................................. 593 645 **(8,105) **(2,338)
Net income (loss) per share--basic and diluted................. 0.04 0.04 (0.49) (0.14)
</TABLE>
* During the fourth quarter of 1997, delays in shipments to Asian customers
resulted in lower sales. In addition, the Company incurred a net charge of
$2,930 for bad debt expense. The lower sales, coupled with this write-off,
resulted in an operating loss of $4,930 for the fourth quarter. Other income
(loss) for the quarter included $1,107 in foreign exchange losses as a result of
the effect of the devaluation of the Korean won on intercompany transactions. In
addition, based on the weight of available evidence as prescribed by SFAS 109,
management determined that it is more likely than not that the net deferred tax
asset at December 31, 1997 will not be realized and, therefore, provided a full
valuation allowance against the net deferred tax asset during the fourth quarter
of 1997.
** During the third and fourth quarters of 1996, the Company recognized
special charges aggregating $5,890 (see Note 11).
NOTE 16. SUBSEQUENT EVENTS
On January 28, 1998 the Board of Directors offered employees the opportunity
to reprice outstanding stock options as of February 9, 1998. The repriced
options, both vested and unvested, are precluded from exercise for a period of
one year from the repricing date. Approximately 1,544,750 options with original
exercise prices ranging from $3.88 to $8.63 were repriced at $3.03, the fair
market value as of February 9, 1998.
37
<PAGE>
GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 16. SUBSEQUENT EVENTS (CONTINUED)
On February 12, 1998 the Company completed a private equity placement of
$5,000 of convertible preferred stock to a group of institutional investors.
Upon fulfillment of certain specified conditions, these same investors have also
committed to provide additional financing of up to $5,000.
NOTE 17.ASSET SALE AGREEMENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE
INDEPENDENT ACCOUNTANTS' REPORT
In April 1998, the Company entered into an agreement with Varian Associates,
Inc. to sell selected assets and transfer selected liabilities related to the
MeV ion implantation equipment product line for approximately $25 million plus
additional payments if certain revenue targets are achieved ("Asset Sale"). The
completion of the Asset Sale is subject to approval by the Company's
shareholders as well as to expiration of the applicable waiting periods under
federal Hart-Scott-Rodino premerger notification requirements. As a result of
the Asset Sale, the Company will no longer engage in the ion implant business
and will refocus its efforts on thin film deposition. The Company will use the
net proceeds of the Asset Sale for repayment of certain outstanding indebtedness
as well as for working capital and general corporate purposes, including
investment in research and development of thin film products. In connection with
the Asset Sale and the refocusing of the Company's business on thin film
products, the Company anticipates that it will significantly reduce the
workforce at its Sunnyvale, California location. In addition, James Healy will
resign as President and Chief Executive Officer of the Company and William W.R.
Elder, the Company's Chairman, will return to a full-time role as President and
Chief Executive Officer.
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Genus, Inc.
We have audited the accompanying consolidated balance sheets of Genus, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Genus, Inc. and
subsidiaries as of December 31, 1997 and 1996 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered losses from
operations during each of the past two years and has an accumulated deficit,
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
San Jose, California
January 26, 1998, except for Notes 1, 5 and 16,
as to which the date is March 2, 1998
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company, who are elected by and
serve at the discretion of the Board of Directors, and their ages at March 31,
1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
William W.R. Elder................... 59 Chairman of the Board
James T. Healy....................... 57 President, Chief Executive Officer and Director
Mary F. Bobel........................ 48 Executive Vice President, Chief Financial Officer
John E. Aldeborgh.................... 41 Executive Vice President, Chief Customer Satisfaction Officer
Frederick E. Heslet, Ed.D............ 58 Executive Vice President, Chief Quality Officer
Thomas E. Seidel, Ph.D............... 62 Executive Vice President, Chief Technical Officer
James McEleney....................... 40 Vice President, General Manager, Ion Technology Products
Mario M. Rosati...................... 51 Secretary and Director
Todd S. Myhre........................ 52 Director
Stephen F. Fisher.................... 44 Director
G. Frederick Forsyth................. 52 Director
</TABLE>
Except as set forth below, all of the executive officers have been
associated with the Company in their present or other capacities for more than
the past five years. Officers are elected annually by the Board of Directors and
serve at the discretion of the Board. There are no family relationships among
executive officers of the Company.
Mr. Elder, a founder of the Company, is the Chairman of the Board. From
April 1990 to September 1996, he was Chairman of the Board, President and Chief
Executive Officer of the Company. From November 1981 to April 1990, he was
President and a director of the Company.
Mr. Healy joined the Company in September 1996 as President and Chief
Executive Officer of the Company. From December 1990 to September 1996, Mr.
Healy was associated with Credence Systems Corporation, a manufacturer of
semiconductor test equipment, in various senior executive management positions,
most recently as President and a director of the Company.
Ms. Bobel joined the Company in March 1997 as Executive Vice President and
Chief Financial Officer. From October 1994 to September 1996, Ms. Bobel served
as Vice President and Chief Financial Officer at Educational Publishing
Corporation, a publisher of supplementary educational materials. From March 1990
to September 1994, she was employed at Adobe Systems, a publicly held software
company, most recently as Vice President and Corporate Controller.
Mr. Aldeborgh joined the Company in June 1989 and serves as the Executive
Vice President and Chief Customer Satisfaction Officer. From January 1997 to
September 1997, Mr. Aldeborgh served as Executive Vice President and Chief
Operating Officer. From January 1993 to January 1997, he was Vice President and
General Manager, Ion Technology Products of the Company. From June 1989 to
January 1993, he was the Director of Operations of the Ion Technology Products.
From May 1983 to May 1989,
40
<PAGE>
Mr. Aldeborgh was with LTX Corporation, a manufacturer of semiconductor test
equipment, in various management positions, most recently as Director of
Manufacturing for the Linear Manufacturing Division.
Dr. Heslet joined the Company in November 1996 as Chief Quality Officer and
Executive Vice President, Human Resources. In addition, he also is employed by
California State University, Hayward, where he has been a professor of
educational psychology since 1968. From November 1990 to December 1996, he
served as Vice President of Quality and Development at Credence Systems
Corporation, a manufacturer of semiconductor test equipment.
Dr. Seidel joined the Company in January 1996 and is the Executive Vice
President and Chief Technical Officer of the Company. From July 1988 to January
1996, Dr. Seidel was associated with SEMATECH, a semiconductor-industry
consortium, in various senior management positions, most recently as Chief
Technologist and Director of Strategic Technology.
Mr. McEleney joined the Company in April 1996 as Vice President, Marketing
of Ion Technology Products and was promoted to Vice President and General
Manager of Ion Technology Products in March 1998. From January 1995 to April
1996, Mr. McEleney was the Director, Sales & Marketing for Thermedics Detection,
Inc., a manufacturer of precision analytical instruments. From December 1984 to
January 1995, Mr. McEleney held various sales and marketing positions for
Teradyne, Inc., a manufacturer of automatic test equipment.
Mr. Rosati has been Secretary of the Company since May 1996 and a director
of the Company since the Company's inception in November 1981. From July 1995 to
April 1996, Mr. Rosati was the Assistant Secretary of the Company. He is also a
director of CATS Software Inc., a supplier of client/server software products
for financial risk management; Meridian Data, Inc., a developer of compact
disc-read only memory (CD-ROM) and compact disc-recordable (CD-R) systems and
related software for both networks and personal computers; Ross Systems, Inc., a
supplier of enterprise-wide business systems and related services to companies
installing open systems/client server software products; and Sanmina
Corporation, an electronics manufacturer of multilayered printed circuit boards,
backplane assemblies, subassemblies, and printed circuit board assemblies. He is
a member of Wilson Sonsini Goodrich & Rosati, P.C., general counsel to the
Company.
Mr. Myhre has served as a director of the Company since January 1994. Since
April 1998, he has served as President and Chief Executive Officer of GameTech
International, an electronic gaming manufacturer. From February 1996 to October
1996, Mr. Myhre was an international business consultant. From September 1995 to
January 1996, he served as President and Chief Executive Officer of GameTech
International. From January 1993 to August 1993, from August 1993 to December
1993 and from January 1994 to August 1995, Mr. Myhre served as Vice President
and Chief Financial Officer of the Company, as Executive Vice President and
Chief Operating Officer of the Company and as President and a director of the
Company, respectively. Mr. Myhre is currently a business consultant.
Mr. Fisher has served as a director of the Company since April 1995, when he
was elected pursuant to the terms of the Stock Purchase Agreement to serve as a
representative of Bachow Group. He has been the Managing Director of Bachow &
Associates, Inc., an investment firm, since June 1993. For more than five years
prior to joining Bachow & Associates, Inc., he served in numerous executive
capacities with Westinghouse Broadcasting Company, Inc., a media and
communications company, most recently as Executive Vice President.
Mr. Forsyth has been a director of the Company since February 12, 1996.
Since August 25, 1997, Mr. Forsyth has served as President, Professional
Products Division of Iomega, Inc. From June 1989 to February 1997, Mr. Forsyth
was associated with Apple Computer, Inc., a personal computer manufacturer, in
various senior management positions, most recently as Senior Vice President and
General Manager, Macintosh Product Group.
41
<PAGE>
SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file certain reports regarding ownership
of, and transactions in, the Company's Securities with the Securities and
Exchange Commission (the "SEC"). Such officers, directors and 10% shareholders
are also required by SEC rules to furnish the Company with copies of all Section
16(a) forms that they file. Based solely on its review of the copies of such
forms received by it, or written representations from certain reporting persons,
the Company believes that during fiscal 1997, its executive officers, directors
and ten percent shareholders filed all required Section 16(a) reports on a
timely basis with the following exceptions: John Aldeborgh filed a Form 5
disclosing one transaction that should have been reported earlier on a Form 4;
and Thomas Seidel filed a Form 5 disclosing two transactions that should have
been reported earlier on Forms 4.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table discloses compensation received by the Company's Chief
Executive Officer and the four other most highly compensated executive officers
of the Company (the "Named Executive Officers") for the three fiscal years ended
December 31, 1997:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS(2)
ANNUAL COMPENSATION -----------------------------
-------------------------------- OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) SARS(#) COMPENSATION($)(3)
- ------------------------------------------------- ---- --------- ----------- -------- ------------------
<S> <C> <C> <C> <C> <C>
William W.R. Elder .............................. 1997 305,000 -- 50,000 43,890
Chairman of the Board 1996 304,167 42,750 100,000 2,947
1995 282,917 18,422
James T. Healy .................................. 1997 300,000 90,000 -- 11,500
President and Chief Executive Officer 1996(4) 87,500 -- 250,000 --
Mary F. Bobel ................................... 1997(5) 137,500 16,500 75,000 6,539
Executive Vice President and Chief Financial
Officer
John E. Aldeborgh ............................... 1997 206,845 20,976 30,000 8,716
Executive Vice President, Chief Customer 1996 182,390 -- 50,000 --
Satisfaction Officer 1995 152,096 30,000 62,500 9,816
Thomas E. Seidel ................................ 1997 209,200 21,000 5,000 8,692
Executive Vice President and Chief Technical 1996(4) 183,333 -- 125,000 948
Officer
</TABLE>
- ------------------------
(1) Except as otherwise noted, all bonuses were earned by the named officer in
the fiscal year indicated and paid to the named officer in early 1998
pursuant to the Company's Management Incentive Plan.
(2) The Company did not make any awards of restricted stock or make any payments
under long-term incentive plans during the periods covered in the table.
(3) Represents amounts contributed to the Company's 401(k) plan on behalf of the
officer by the Company and automobile allowances. Premiums in the amount of
$2,947 and $3,540 were also paid by the Company on behalf of Mr. Elder for a
term life insurance policy (the proceeds of which are payable to his named
beneficiaries) in fiscal 1996 and fiscal 1997, respectively.
42
<PAGE>
(4) Mr. Healy and Mr. Seidel were not employed by the Company prior to fiscal
1996. Mr. Healy joined the Company in September 1996. Mr. Seidel joined the
Company in January 1996.
(5) Ms. Bobel was not employed by the Company prior to fiscal 1997. Ms. Bobel
joined the Company in March 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants made in fiscal
1997 to the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
-------------------------------------------------- AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
OPTION/SARS PRICE
GRANTED TO EXERCISE APPRECIATION FOR
EMPLOYEES OR BASE OPTION TERM(3)
OPTION/SARS IN FISCAL PRICE PER EXPIRATION -----------------
NAME GRANTED(1) YEAR(2) SHARE DATE 5% 10%
- --------------------------------------- ----------- ----------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
William W.R. Elder..................... -- -- -- -- -- --
James T. Healy......................... -- -- -- -- -- --
Mary F. Bobel.......................... 75,000 14 3.87 2002 $80,191 $177,201
John E. Aldeborgh...................... 30,000 6 5.25 2002 43,514 96,155
Thomas E. Seidel....................... 5,000 1 5.25 2002 7,252 16,026
</TABLE>
- ------------------------
(1) The indicated options were granted at various dates in 1997, vest at the
rate of 1/3 per year and become fully exercisable at various dates in 2000.
(2) The Company granted options to purchase 537,000 shares to employees in
fiscal 1997.
(3) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option term (5 years) at the annual rate
specified (5% and 10%).
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides information on option/SAR exercises in fiscal
1997 by the Named Executive Officers and the value of such officers' unexercised
options/SARs at December 31, 1997. Options were exercised by Named Executive
Officers during fiscal 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTION/SARS AT 12/31/97 OPTION/SARS AT 12/31/97(2):
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED(1) (EXERCISABLE) (UNEXERCISABLE) (EXERCISABLE) (UNEXERCISABLE)
- -------------------------- ----------- ----------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
William W.R. Elder........ 20,000 61,260 99,999 50,001 -- --
James T. Healy............ 833,325 166,675 -- --
Mary F. Bobel............. 25,000 50,000 -- --
John E. Aldeborgh......... 58,311 61,670 -- --
Thomas E. Seidel.......... 68,327 61,673 -- --
</TABLE>
- ------------------------
(1) Fair market value of the Company's Common Stock on the date of exercise
minus the exercise price.
(2) Market value of underlying securities based on the closing price of
Company's Common Stock on December 31, 1997, on NASDAQ of $3.334, less the
exercise price.
The Company has not established any long-term incentive plans or defined
benefit or actuarial plans covering any of the Named Executive Officers.
43
<PAGE>
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements.
Consolidated Balance Sheets--December 31, 1997 and 1996 Consolidated
Statements of Operations--Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity--Years Ended December 31,
1997, 1996 and 1995
Consolidated Statements of Cash Flows--Years Ended December 31, 1997, 1996
and 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. FINANCIAL STATEMENT SCHEDULE. The following financial statement schedule of
Genus, Inc. for the years ended December 31, 1997, 1996 and 1995 is filed as
part of this Report and should be read in conjunction with the Consolidated
Financial Statements of Genus, Inc.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Report of Independent Accountants........................................ 49
II-- Valuation and Qualifying Accounts........................................ 50
</TABLE>
Schedules not listed above have been omitted because they are not applicable
or are not required or the information required to be set forth therein is
included in the Consolidated Financial Statements or Notes thereto.
3. EXHIBITS. The Exhibits listed on the accompanying Index to Exhibits
immediately following the financial statement schedule are filed as part of,
or incorporated by reference into, this Report.
4. REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company
during the fourth quarter ended December 31, 1997.
48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Genus, Inc.
Our report on the consolidated financial statements of Genus, Inc. is
included on page 39 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
January 26, 1998
49
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
CHANGE OF CONTROL SEVERANCE AGREEMENTS
Certain executive officers and key employees have severance agreements with
the Company that provide severance benefits in the event that the executive or
employee's employment with the Company is "Involuntarily Terminated" or
otherwise terminated without "Cause" within a specified period of time (either
six months or one year) following a "Change of Control." The severance benefits
include a cash payment of a specified percentage (either 600% or 1200%) of the
executive's or employee's monthly base pay. The severance agreements define
"Cause" to include an act of dishonesty intended to result in substantial gain
or personal enrichment; conviction of an illegal act with respect to his or her
employment by the Company; and willful violations of the executive's or key
employee's obligations to the Company. The severance agreements define
"Involuntary Termination" as a reduction in base compensation; a relocation of
the executive or key employee to a location more than 50 miles from the
executive or key employee's present location; a material reduction in benefits
or a material increase in the executive's or employee's cost of benefits;
significant reduction of the executive's or key employee's duties or
responsibilities; or the failure or refusal of a successor company to assume the
Company's obligations under the severance agreements. The severance agreements
define "Change of Control" to mean the occurrence of any of the following
events: (i) any person becomes the beneficial owner of securities of the Company
representing 50% or more of the total voting power represented by the Company's
then outstanding voting securities; or (ii) an change in the composition of the
Board of Directors occurring within a two-year period, as a result of which
fewer than a majority of the directors are incumbent directors; or (iii) the
shareholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent at least 50% of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets. The immediate applicability of the change of control
severance benefits to any specific executive officer or key employee is unknown
at this time.
TERMINATION OF EMPLOYMENT AGREEMENT
On April 20, 1998, the Company entered into a Settlement Agreement and
Mutual Release with James T. Healy (the "Healy Agreement") in connection with
Mr. Healy's planned resignation from the positions of President and Chief
Executive Officer of the Company effective as of April 30, 1998. Pursuant to the
Healy Agreement, the Company will continue to pay Mr. Healy $25,000 per month,
less applicable withholding, for nine months from the date of his resignation.
Mr. Healy will not be entitled to the accrual or continuation of any employee
benefits, including but not limited to, vacation benefits and bonuses. The
exercise of any stock options will continue to be subject to the terms and
conditions of the Company's Stock Option Plan and the applicable Stock Option
Agreement between Mr. Healy and the Company.
TRANSITION AGREEMENT
On April 30, 1996, the Company entered into a Management Transition
Agreement with William W.R. Elder (the "Elder Agreement"). The Elder Agreement
provides for the cessation of Mr. Elder's services to the Company in his
capacity as Chief Executive Officer, the continuation of his role as Chairman of
the Board and the commencement of his role as an employee of the Company until
December 31, 1997 and as a consultant to the Company until December 31, 1999.
The terms of the Elder Agreement provide for Mr. Elder to continue to receive
his salary as in effect on April 30, 1996 until December 31, 1997 and $100,000
per year for the period of January 1, 1998 to December 31, 1999, provided Mr.
Elder does not cease to be an employee of or consultant to the Company prior to
such dates. In addition, the Elder Agreement provides that Mr. Elder will
receive all of the employee benefits that he received as of April 30,
44
<PAGE>
1996 so long as he is an employee of the Company, and will receive only health
benefits and an automobile allowance so long as he is a consultant to the
Company. Mr. Elder's options to purchase Common Stock of the Company will be
governed by the provisions of the applicable option agreements between Mr. Elder
and the Company, and the vesting, post-termination exercisability and other
provisions of such options shall not be affected by the Elder Agreement.
Following the planned resignation of Mr. Healy, Mr. Elder will resume the
position of President and Chief Executive Officer and continue as Chairman of
the Board.
DIRECTOR COMPENSATION
The Company currently pays to its directors who are not employees a fee of
$1,000 per meeting and $500 per telephonic meeting. In addition, the Company
pays non-employee members of the board an annual fee of $10,000. The Company
also reimburses directors for reasonable expenses incurred in attending
meetings. Under the Company's 1991 Option Plan, each of the non-employee
directors receives an automatic grant of an option to purchase 5,000 shares of
Common Stock on the date of his or her appointment or election to the Board and,
for so long as he or she continues to serve as a director, an automatic grant of
an option to purchase 5,000 shares of Common Stock on February 7 of each year.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of 7 meetings during the
year ended December 31, 1997. The Board of Directors has an Audit Committee and
a Compensation Committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.
During the year ended December 31, 1997, the Audit Committee of the Board of
Directors consisted of directors Fisher, Forsyth and Rosati and held one
meeting. As of March 31, 1998 the Audit Committee consisted of directors
Forsyth, Myhre and Rosati. The Audit Committee recommends engagement of the
Company's independent accountants and is primarily responsible for approving the
services performed by the Company's independent accountants and for reviewing
and evaluating the Company's accounting principles and its system of internal
accounting controls.
During the year ended December 31, 1997, the Compensation Committee of the
Board of Directors consisted of directors Fisher, Forsyth and Rosati and held
three meetings. As of March 31, 1998 the Compensation Committee consisted of
directors Forsyth, Myhre and Rosati. The Compensation Committee makes
recommendations to the Board of Directors regarding the Company's executive
compensation policy. See "Compensation Committee Report on Executive
Compensation."
No director serving in the year ended December 31, 1997, attended fewer than
75% of the aggregate number of meetings of the Board of Directors and meetings
of the committees of the Board on which he or she serves.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1997, the Company paid legal fees and expenses to Wilson Sonsini Goodrich
& Rosati, Professional Corporation, general counsel to the Company. Mario M.
Rosati, a director and Secretary of the Company, is a member of the firm of
Wilson Sonsini Goodrich & Rosati.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of March 31,
1998, by (i) each of the Company's directors, (ii) each Named Executive Officer,
(iii) all directors and executive officers of the Company as a group and
45
<PAGE>
(iv) each person known by the Company to beneficially own more than 5% of the
Company's Common Stock:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES(1) CLASS(2)
- ------------------------------------------------------------------------------------------ ---------- -------------
<S> <C> <C>
The Parnassus Fund........................................................................ 1,150,000 6.71%
244 California Street, Ste. 400
San Francisco, CA 94111
Anthony T. Winn........................................................................... 1,000,000 5.84%
c/o Herbert H. Davis III, Esq.
1200 17th Street Suite 3000
Denver, CO 80202
Bachow Investment Partners III, L.P.(3)................................................... 997,876 5.83%
3 Bala Plaza East, Suite 502
Bala Cynwyd, PA 19004
Dimensional Fund Advisors................................................................. 868,400 5.07%
1299 Ocean Ave.
11th Floor
Santa Monica, CA
William W.R. Elder(4)..................................................................... 230,599 1.35%
James T. Healy............................................................................ 5,000 *
Paul S. Bachow Co-Investment Fund, L.P.(5)................................................ 138,671 *
3 Bala Plaza East, Suite 502
Bala Cynwyd, PA 19004
Paul S. Bachow(6)......................................................................... 63,392 *
3 Bala Plaza East, Suite 502
Bala Cynwyd, PA 19004
Mary F. Bobel(7).......................................................................... 27,032 *
Mario M. Rosati(8)........................................................................ 11,500 *
Thomas E. Seidel.......................................................................... 3,841 *
John E. Aldeborgh......................................................................... 2,593 *
Stephen F. Fisher(9)...................................................................... 0 *
G. Frederick Forsyth...................................................................... 0 *
Todd S. Myhre............................................................................. 0 *
All directors and executive officers as a group (11 persons)(10).......................... 1,485,076 8.67%
</TABLE>
- ------------------------
* Less than 1%.
(1) Except as otherwise indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock shown
as beneficially owned by them.
(2) Applicable percentage ownership is based on 17,129,260 shares of Common
Stock outstanding as of March 31, 1998 together with applicable options for
such shareholder. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission, based on factors including
voting and investment power with respect to shares. Shares of Common Stock
subject to the options currently exercisable, or exercisable within 60 days
after March 31, 1998, are deemed
46
<PAGE>
outstanding for computing the percentage ownership of the person holding
such options, but are not deemed outstanding for computing the percentage
ownership of any other person.
(3) Does not include 138,671 shares held by Paul S. Bachow Co-Investment Fund,
L.P. and 63,392 shares held by Paul S. Bachow, as to which Bachow Investment
Partners III, L.P. disclaims beneficial ownership.
(4) Consists of 230,599 shares held in William R. Elder and Gloria S. Elder
Family Trust.
(5) Does not include 977,876 shares held by Bachow Investment Partners III, L.P.
and 63,392 shares held by Paul S. Bachow, as to which Paul S. Bachow
Co-Investment Fund, L.P. disclaims beneficial ownership.
(6) Does not include 977,876 shares held by Bachow Investment Partners III, L.P.
and 138,671 shares held by Paul S. Bachow Co-Investment Fund, L.P., as to
which Paul S. Bachow disclaims beneficial ownership.
(7) Consists of 2,032 shares of Common Stock and options to purchase 25,000
shares of Common Stock exercisable within 60 days of March 31, 1998.
(8) Consists of 2,500 shares held by Mr. Rosati, 9,000 shares held by WS
Investments 92A and options to purchase 5,000 shares of Common Stock
exercisable within 60 days of March 31, 1998. Mr. Rosati is a general
partner of WS Investments 92A and disclaims beneficial ownership of the
shares held by such entity except to the extent of his proportionate
partnership interest therein.
(9) On April 3, 1995, pursuant to the terms of a Stock Purchase Agreement dated
February 10, 1995 (the "Stock Purchase Agreement") by and among the Company
and Bachow Investment Partners III, L.P., Paul S. Bachow Co-Investment Fund,
L.P. and Paul S. Bachow, (collectively the "Bachow Group"), Mr. Fisher was
elected as a representative of the Bachow Group to fill an existing vacancy
on the Company's Board of Directors. This figure does not include the
1,179,939 shares held by the Bachow Group, as to which shares Mr. Fisher has
neither voting nor investment power.
(10) Includes options to purchase 25,000 shares of Common Stock exercisable
within 60 days of March 31, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements" above.
47
<PAGE>
SCHEDULE II
GENUS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
DESCRIPTION PERIOD EXPENSES DEDUCTIONS END OF PERIOD
- ------------------------------------------------------------ ------------- ----------- ----------- -------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
1995
Allowance for doubtful accounts............................. $ 250 $ -- $ -- $ 250
Inventory reserves.......................................... 2,665 995 389 3,271
Product warranty and installation accruals.................. 2,394 3,640 1,716 4,318
1996
Allowance for doubtful accounts............................. 250 -- -- 250
Inventory reserves.......................................... 3,271 4,603 1,338 6,536
Product warranty and installation accruals.................. 4,318 4,022 3,456 4,884
1997
Allowance for doubtful accounts............................. 250 4,589 3,742 1,097
Inventory reserves.......................................... 6,536 910 2,040 5,406
Product warranty and installation accruals.................. 4,884 3,620 4,754 3,750
</TABLE>
50
<PAGE>
GENUS, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1997
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Asset Purchase Agreement, dated April 15, 1998, by and between Varian Associates, Inc. and
Registrant and exhibits thereto (15)
3.1 Amended and Restated Articles of Incorporation of Registrant as filed June 6, 1997 (11)
3.2 By-laws of Registrant, as amended (2)
4.1 Common Shares Rights Agreement, dated as of April 27, 1990, between Registrant and Bank of
America, N.T. and S.A., as Rights Agent (4)
4.2 Convertible Preferred Stock Purchase Agreement, dated February 2, 1998, among the Registrant
and the Investors (14)
4.3 Registration Rights Agreement, dated February 2, 1998, among the Registrant and the
Investors (14)
4.4 Certificate of Determination (14)
10.1 Lease, dated December 6, 1985, for Registrant's facilities at 4 Mulliken Way, Newburyport,
Massachusetts, and amendment and extension of lease, dated March 17, 1987 (1)
10.2 Assignment of Lease, dated April 1986, for Registrant's facilities at Unit 11A, Melbourn
Science Park, Melbourn, Hertz, England (1)
10.3 Registrant's 1989 Employee Stock Purchase Plan, as amended (5)
10.4 Registrant's 1991 Incentive Stock Option Plan, as amended (10)
10.5 International Distributor Agreement, dated November 23, 1987, between General Ionex
Corporation and Innotech Corporation (1)
10.6 Distributor/Representative Agreement, dated August 1, 1984, between Registrant and Aju Exim
(formerly Spirox Holding Co./You One Co. Ltd.) (1)
10.7 Exclusive Sales and Service Representative Agreement, dated October 1, 1989, between
Registrant and AVBA Engineering Ltd. (3)
10.8 Exclusive Sales and Service Representative Agreement, dated as of April 1, 1990, between
Registrant and Indosale PVT Ltd. (3)
10.9 License Agreement, dated November 23, 1987, between Registrant and Eaton Corporation (1)
10.10 Exclusive Sales and Service Representative Agreement, dated May 1, 1989, between Registrant
and Spirox Taiwan, Ltd. (2)
10.11 Lease, dated April 7, 1992, between Registrant and The John A. and Susan R. Sobrato 1979
Revocable Trust for property at 1139 Karlstad Drive, Sunnyvale, California (6)
10.12 Asset Purchase Agreement, dated May 28, 1992, by and between the Registrant and Advantage
Production Technology, Inc. (7)
10.13 License and Distribution Agreement, dated September 8, 1992, between the Registrant and
Sumitomo Mutual Industries, Ltd. (8)
10.14 Lease Agreement, dated October 1995, for Registrant's facilities at Lot 62, Four Stanley
Tucker Drive, Newburyport, Massachusetts (9)
10.15 International Distributor Agreement, dated July 18, 1997, between Registrant and Macrotron
Systems GmbH (12)
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------
<S> <C> <C>
10.16 Credit Agreement, dated August 18, 1997, between Registrant and Sumitomo Bank of California
(12)
10.17 Settlement Agreement and Mutual Release, dated April 20, 1998, between Registrant and James
T. Healy
10.18 Form of Change of Control Severance Agreement
21.1 Subsidiaries of Registrant
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
27.2 Financial Data Schedule (Restated Fiscal Year Ends 1995, 1996 and Quarters 1, 2, 3 of 1996)
27.3 Financial Data Schedule (Restated Quarters 1, 2, 3 of 1997)
</TABLE>
- ------------------------
(1) Incorporated by reference to the exhibit filed with Registrant's
Registration Statement on Form S-1 (No. 33-23861) filed August 18, 1988,
and amended on September 21, 1988, October 5, 1988, November 3, 1988,
November 10, 1988, and December 15, 1988, which Registration Statement
became effective November 10, 1988.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1 (No. 33-28755) filed on May 17, 1989,
and amended May 24, 1989, which Registration Statement became effective May
24, 1989.
(3) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
(5) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.
(7) Incorporated by reference to the exhibit filed with the Registrant's Report
on Form 8-K dated June 12, 1992.
(8) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 21, 1992.
(9) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995.
(10) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
(11) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
(12) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
(13) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
(14) Incorporated by reference to the exhibit filed with the Registrant's
Current Report on Form 8-K dated February 12, 1998.
(15) Incorporated by reference to the exhibit filed with the Registrant's
Current Report on Form 8-K dated April 15, 1998.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Sunnyvale, State of California, on the 28th day of April 1998.
GENUS, INC.
By: /s/ MARY F. BOBEL
-----------------------------------------
Mary F. Bobel
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ WILLIAM W. R. ELDER*
- ------------------------------ Chairman of the Board April 28, 1998
William W. R. Elder
/s/ JAMES T. HEALY President, Chief Executive
- ------------------------------ Officer (Principal April 28, 1998
James T. Healy Executive Officer)
Executive Vice President,
/s/ MARY F. BOBEL Chief Financial Officer
- ------------------------------ (Principal Financial April 28, 1998
Mary F. Bobel Officer and Principal
Accounting Officer)
/s/ STEPHEN F. FISHER*
- ------------------------------ Director April 28, 1998
Stephen F. Fisher
/s/ G. FREDERICK FORSYTH*
- ------------------------------ Director April 28, 1998
G. Frederick Forsyth
/s/ TODD S. MYHRE*
- ------------------------------ Director April 28, 1998
Todd S. Myhre
/s/ MARIO M. ROSATI*
- ------------------------------ Director April 28, 1998
Mario M. Rosati
*By: /s/ MARY F. BOBEL
-------------------------
Mary F. Bobel April 28, 1998
ATTORNEY-IN-FACT
<PAGE>
EXHIBIT 10.17
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release ("Agreement") is made by
and between GENUS, INC. (the "Company"), and JAMES T. HEALY ("Employee").
WHEREAS, Employee was employed by the Company;
WHEREAS, Employee and the Company entered into a Letter Agreement dated
August 21, 1996.
WHEREAS, the Company and Employee have entered into a Change of Control
Severance Agreement (the "Change of Control Agreement").
WHEREAS, the Company and Employee have mutually agreed to terminate the
employment relationship and to release each other from any claims arising
from or related to the employment relationship;
NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Employee (collectively referred to as "the Parties") hereby agree
as follows:
1. RESIGNATION. Employee resigns from his position as the Company's
President and Chief Executive Officer and from his position as a member of
the Company's Board of Directors on April 30, 1998.
2. CONSIDERATION. The Company agrees to pay Employee at his normal
rate of pay of twenty-five thousand Dollars ($25,000) per month, less
applicable withholding, for nine (9) months from the effective date of his
resignation (the "payment period") in accordance with the Company's payroll
practices. During the payment period, Employee will not be entitled to the
accrual or continuation of any employee benefits, including, but not limited
to, vacation benefits or bonuses.
3. VESTING OF STOCK. The Parties agree that for purposes of
determining the number of shares of the Company's common stock which Employee
is entitled to purchase from the Company, Employee's vesting shall cease as
of the date of this Agreement. The exercise of any stock options shall
continue to be subject to the terms and conditions of the Company's Stock
Option Plan and the applicable Stock Option Agreement between Employee and
the Company.
<PAGE>
4. BENEFITS. Employee shall have the right to convert his health
insurance benefits to individual coverage pursuant to COBRA.
5. CONFIDENTIAL INFORMATION. Employee shall continue to maintain the
confidentiality of all confidential and proprietary information of the
Company and shall continue to comply with the terms and conditions of any
Confidentiality Agreement between Employee and the Company. Employee shall
return all the Company property and confidential and proprietary information
in his possession to the Company on the Effective Date of this Agreement.
6. PAYMENT OF SALARY. Employee acknowledges and represents that the
Company has paid all salary, wages, bonuses, accrued vacation, commissions
and any and all other benefits due to Employee.
7. RELEASE OF CLAIMS. Employee agrees that the foregoing
consideration represents settlement in full of all outstanding obligations
owed to Employee by the Company. Employee and the Company, on behalf of
themselves, and their respective heirs, family members, executors, officers,
directors, employees, investors, shareholders, administrators, affiliates,
divisions, subsidiaries, predecessor and successor corporations, and assigns,
hereby fully and forever release each other and their respective heirs,
family members, executors, officers, directors, employees, investors,
shareholders, administrators, affiliates, divisions, subsidiaries,
predecessor and successor corporations, and assigns, from, and agree not to
sue concerning, any claim, duty, obligation or cause of action relating to
any matters of any kind, whether presently known or unknown, suspected or
unsuspected, that any of them may possess arising from any omissions, acts or
facts that have occurred up until and including the Effective Date of this
Agreement including, without limitation,
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to, or arising from, Employee's
right to purchase, or actual purchase of shares of stock of the Company,
including, without limitation, any claims for fraud, misrepresentation,
breach of fiduciary duty, breach of duty under applicable state corporate
law, and securities fraud under any state or federal law;
(c) any and all claims for wrongful discharge of employment;
termination in violation of public policy; discrimination; breach of
contract, both express and implied; breach of a covenant of good faith and
fair dealing, both express and implied; promissory estoppel; negligent or
intentional infliction of emotional distress; negligent or intentional
misrepresentation; negligent or intentional interference with contract or
prospective economic advantage; unfair business practices; defamation; libel;
slander; negligence; personal injury; assault; battery; invasion of privacy;
false imprisonment; and conversion;
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<PAGE>
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair
Labor Standards Act, the Employee Retirement Income Security Act of 1974, The
Worker Adjustment and Retraining Notification Act, Older Workers Benefit
Protection Act; the California Fair Employment and Housing Act, and Labor
Code section 201, ET SEQ. and section 970, ET SEQ.;
(e) any and all claims for violation of the federal, or any state,
constitution;
(f) any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination; and
(g) any and all claims for attorneys' fees and costs.
The Company and Employee agree that the release set forth in this section
shall be and remain in effect in all respects as a complete general release
as to the matters released. This release does not extend to any obligations
incurred under this Agreement.
8. ACKNOWLEDGMENT OF WAIVER OF CLAIMS UNDER ADEA. Employee
acknowledges that he is waiving and releasing any rights he may have under
the Age Discrimination in Employment Act of 1967 ("ADEA") and that this
waiver and release is knowing and voluntary. Employee and the Company agree
that this waiver and release does not apply to any rights or claims that may
arise under ADEA after the Effective Date of this Agreement. Employee
acknowledges that the consideration given for this waiver and release
Agreement is in addition to anything of value to which Employee was already
entitled. Employee further acknowledges that he has been advised by this
writing that (a) he should consult with an attorney PRIOR to executing this
Agreement; (b) he has at least twenty-one (21) days within which to consider
this Agreement; (c) he has at least seven (7) days following the execution of
this Agreement by the parties to revoke the Agreement; and (d) this Agreement
shall not be effective until the revocation period has expired.
9. CIVIL CODE SECTION 1542. The Parties represent that they are not
aware of any claim by either of them other than the claims that are released
by this Agreement. Employee and the Company acknowledge that they have been
advised by legal counsel and are familiar with the provisions of California
Civil Code Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
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<PAGE>
Employee and the Company, being aware of said code section, agree to
expressly waive any rights they may have thereunder, as well as under any
other statute or common law principles of similar effect.
10. NO PENDING OR FUTURE LAWSUITS. Employee represents that he has no
lawsuits, claims, or actions pending in his name, or on behalf of any other
person or entity, against the Company or any other person or entity referred
to herein. Employee also represents that he does not intend to bring any
claims on his own behalf or on behalf of any other person or entity against
the Company or any other person or entity referred to herein.
11. APPLICATION FOR EMPLOYMENT. Employee understands and agrees that,
as a condition of this Agreement, he shall not be entitled to any employment
with the Company, its subsidiaries, or any successor, and he hereby waives
any right, or alleged right, of employment or re-employment with the Company.
Employee further agrees that he will not apply for employment with the
Company, its subsidiaries or related companies, or any successor.
12. CONFIDENTIALITY. The Parties hereto each agree to use their best
efforts to maintain in confidence the existence of this Agreement, the
contents and terms of this Agreement, and the consideration for this
Agreement (hereinafter collectively referred to as "Settlement Information").
Each Party hereto agrees to take every reasonable precaution to prevent
disclosure of any Settlement Information to third parties, and each agrees
that there will be no publicity, directly or indirectly, concerning any
Settlement Information. The Parties hereto agree to take every precaution to
disclose Settlement Information only to those employees, officers, directors,
attorneys, accountants, governmental entities, and family members who have a
reasonable need to know of such Settlement Information.
13. NO COOPERATION. Employee agrees he will not act in any manner that
might damage the business of the Company. Employee agrees that he will not
counsel or assist any attorneys or their clients in the presentation or
prosecution of any disputes, differences, grievances, claims, charges, or
complaints by any third party against the Company and/or any officer,
director, employee, agent, representative, shareholder or attorney of the
Company, unless under a subpoena or other court order to do so.
14. NON-DISPARAGEMENT. Each party agrees to refrain from any
defamation, libel or slander of the other, or tortious interference with the
contracts and relationships of the other. All inquiries by potential future
employers of Employee will be directed to the Company's Human Resources
department. Upon inquiry, the Company shall only state the following:
Employee's last position and dates of employment. A press release
announcing Employee's resignation shall be made.
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<PAGE>
15. TAX CONSEQUENCES. The Company makes no representations or
warranties with respect to the tax consequences of the payment of any sums to
Employee under the terms of this Agreement. Employee agrees and understands
that he is responsible for payment, if any, of local, state and/or federal
taxes on the sums paid hereunder by the Company and any penalties or
assessments thereon. Employee further agrees to indemnify and hold the
Company harmless from any claims, demands, deficiencies, penalties,
assessments, executions, judgments, or recoveries by any government agency
against the Company for any amounts claimed due on account of Employee's
failure to pay federal or state taxes or damages sustained by the Company by
reason of any such claims, including reasonable attorneys' fees.
16. COSTS. The Parties shall each bear their own costs, expert fees,
attorneys' fees and other fees incurred in connection with this Agreement.
17. ARBITRATION. The Parties agree that any and all disputes arising
out of the terms of this Agreement, their interpretation, and any of the
matters herein released, shall be subject to binding arbitration in Santa
Clara County before the American Arbitration Association under its California
Employment Dispute Resolution Rules, or by a judge to be mutually agreed
upon. The Parties agree that the prevailing party in any arbitration shall
be entitled to injunctive relief in any court of competent jurisdiction to
enforce the arbitration award. The Parties agree that the prevailing party
in any arbitration shall be awarded its reasonable attorney's fees and costs.
18. AUTHORITY. The Company represents and warrants that the
undersigned has the authority to act on behalf of the Company and to bind the
Company and all who may claim through it to the terms and conditions of this
Agreement. Employee represents and warrants that he has the capacity to act
on his own behalf and on behalf of all who might claim through him to bind
them to the terms and conditions of this Agreement. Each Party warrants and
represents that there are no liens or claims of lien or assignments in law or
equity or otherwise of or against any of the claims or causes of action
released herein.
19. NO REPRESENTATIONS. Each party represents that it has had the
opportunity to consult with an attorney, and has carefully read and
understands the scope and effect of the provisions of this Agreement.
Neither party has relied upon any representations or statements made by the
other party hereto which are not specifically set forth in this Agreement.
20. SEVERABILITY. In the event that any provision hereof
becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in
full force and effect without said provision.
21. ENTIRE AGREEMENT. This Agreement represents the entire agreement
and understanding between the Company and Employee concerning Employee's
separation from the
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<PAGE>
Company, and supersedes and replaces any and all prior agreements and
understandings concerning Employee's relationship with the Company and his
compensation by the Company.
22. NO ORAL MODIFICATION. This Agreement may only be amended in
writing signed by Employee and the President of the Company.
23. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California.
24. EFFECTIVE DATE. This Agreement is effective seven days after it
has been signed by both Parties.
25. COUNTERPARTS. This Agreement may be executed in counterparts, and
each counterpart shall have the same force and effect as an original and
shall constitute an effective, binding agreement on the part of each of the
undersigned.
26. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf
of the Parties hereto, with the full intent of releasing all claims. The
Parties acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation, negotiation,
and execution of this Agreement by legal counsel of their own choice or that
they have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this Agreement
and of the releases it contains;
(d) They are fully aware of the legal and binding effect of this
Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
GENUS, Inc.
Dated: April 20, 1998 By /s/ WILLIAM W.R. ELDER
-------------------------------
William W. R. Elder
Chairman of the Board
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<PAGE>
James T. Healy, an individual
Dated: April 17, 1998 /s/ JAMES T. HEALY
----------------------------------
James T. Healy
-7-
<PAGE>
EXHIBIT 10.18
GENUS, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the "Agreement") is made and
entered into by and between [name of employee] (the "Employee") and Genus,
Inc., a California corporation (the "Company"), effective as of the latest
date set forth by the signatures of the parties hereto below (the "Effective
Date").
R E C I T A L S
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control.
The Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee
to consider alternative employment opportunities. The Board has determined
that it is in the best interests of the Company and its shareholders to
assure that the Company will have the continued dedication and objectivity of
the Employee, notwithstanding the possibility, threat or occurrence of a
Change of Control (as defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its shareholders to provide the Employee with an incentive to continue
his employment and to motivate the Employee to maximize the value of the
Company upon a Change of Control for the benefit of its shareholders.
C. The Board believes that it is imperative to provide the Employee
with certain severance benefits upon Employee's termination of employment
following a Change of Control which provides the Employee with enhanced
financial security and provides incentive and encouragement to the Employee
to remain with the Company notwithstanding the possibility of a Change of
Control.
D. Certain capitalized terms used in the Agreement are defined in
Section 5 below.
The parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall terminate two years
following the Effective Date, unless a Change of Control has occurred as of
such time, in which case this Agreement shall terminate upon the date that
all of the obligations of the parties hereto with respect to this Agreement
have been satisfied.
2. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge that
the Employee's employment is and shall continue to be at-will, as defined
under applicable law, except as may otherwise be specifically provided under
the terms of any written formal employment
<PAGE>
agreement between the Company and Employee (an "Employment Agreement"). If
the Employee's employment terminates for any reason, including (without
limitation) any termination prior to a Change of Control, the Employee shall
not be entitled to any payments, benefits, damages, awards or compensation
other than as provided by this Agreement or under his or her Employment
Agreement (if any) together with, or as may otherwise be available in
accordance with the Company's established employee plans and practices or
pursuant to other agreements with the Company.
3. SEVERANCE BENEFITS.
(a) TERMINATION FOLLOWING A CHANGE OF CONTROL. If the Employee's
employment terminates at any time within [six (6) or twelve (12)] months
following a Change of Control, then, subject to Section 4, the Employee shall
be entitled to receive the following severance benefits:
(i) INVOLUNTARY TERMINATION; NOT FOR CAUSE TERMINATION. If
the Employee's employment is terminated as a result of Involuntary
Termination (whether such termination is initiated by the Company or by the
Employee), or as a result of termination other than for Cause, then the
Employee shall receive from the Company a severance payment (or payments) in
cash in an amount equal to [six hundred or twelve hundred] percent
[(600%) or (1200%)] of the Employee's Monthly Base Pay. The Employee shall
not be entitled to and the Company shall not obligated to provide any
employee benefits to Employee other than those required by law.
(b) TIMING OF SEVERANCE PAYMENTS. The severance payment or
payments to which Employee is entitled shall be paid by the Company to
Employee either: (a) in cash and in full, not later than ten (10) calendar
days after the date of termination of Employee's employment, or, (b) as
salary continuation on the same basis and timing as in effect immediately
prior to the Change of Control; (a) or (b) will be chosen at the Company's
discretion. The Company will make this choice known to Employee at the time
of termination. However, Employee may, prior to the date a Severance Payment
becomes payable, elect another method of payment if reasonable and
pre-approved by the Company. No alternative method of payment shall defer
payment of the Severance Payment more than [six (6) or twelve (12)] months
and a day after the date of termination of Employee's employment. If
Employee should die before all amounts payable to him or her have been paid,
such unpaid amounts shall be paid to Employee's designated beneficiary, if
living, or otherwise to the personal representative of Employee's estate.
(c) VOLUNTARY RESIGNATION; TERMINATION FOR CAUSE. If the
Employee's employment terminates by reason of the Employee's voluntary
resignation (and is not an Involuntary Termination), or if the Employee is
terminated for Cause, then the Employee shall not be entitled to receive
severance or other benefits except for those (if any) as may then be
established under the Company's then existing severance and benefits plans
and practices or pursuant to other written agreements with the Company.
(d) DISABILITY; DEATH. If the Company terminates the Employ-ee's
employment as a result of the Employee's Disability, or such Employee's
employment is terminated due to the death of the Employee, then the Employee
shall not be entitled to receive severance or other benefits except for
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<PAGE>
those (if any) as may then be established under the Company's then existing
severance and benefits plans and practices or pursuant to other written
agreements with the Company.
(e) TERMINATION APART FROM CHANGE OF CONTROL. In the event the
Employee's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the [six (6) or twelve (12)] month
period following a Change of Control, then the Employee shall be entitled to
receive severance and any other benefits only as may then be established
under the Company's existing severance and benefits plans and practices or
pursuant to other written agreements with the Company.
4. LIMITATION ON PAYMENTS. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Employee
(i) constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 4, would be subject to the excise tax imposed by Section 4999 of the
Code, then the Employee's severance benefits under Section 3(a)(i) shall be
either
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in
no portion of such severance benefits being subject to
excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by the Employee on an after-tax basis, of the
greatest amount of severance benefits, notwithstanding that all or some
portion of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Company and the Employee otherwise agree in writing, any
determination required under this Section 4 shall be made in writing by the
Company's independent public accountants immediately prior to Change of
Control (the "Accountants"), whose determination shall be conclusive and
binding upon the Employee and the Company for all purposes. For purposes of
making the calculations required by this Section 4, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and the Employee shall
furnish to the Accountants such information and documents as the Accountants
may reasonably request in order to make a determination under this Section.
The Company shall bear all costs the Accountants may reasonably incur in
connection with any calculations contemplated by this Section 4.
5. DEFINITION OF TERMS. The following terms referred to in this
Agreement shall have the following meanings:
(a) "MONTHLY BASE PAY" means all base straight-time gross
earnings, exclusive of payments for overtime, shift premiums, incentive
compensation, incentive payments, bonuses, commissions or other compensation,
for the last full calendar month preceding the date of the Change of Control.
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<PAGE>
(b) CAUSE. "Cause" shall mean (i) any act of dishonesty taken by
the Employee and intended to result in substantial gain or personal
enrichment of the Employee, (ii) persistent failure or inability to perform
the duties and obligations of Employee's employment which are demonstrably
willful and deliberate on the Employee's part and which are not remedied in a
reasonable period of time after receipt of written notice from Company, (iii)
conviction of Employee of an illegal act with respect to his or her
employment by the Company.
(c) CHANGE OF CONTROL. "Change of Control" means the occurrence
of any of the following events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the
total voting power represented by the Company's then outstanding voting
securities; or
(ii) A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date hereof,
or (B) are elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company); or
(iii) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the
shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all the Company's assets.
(d) DISABILITY. "Disability" shall mean that the Employee has
been unable to perform his Company duties as the result of his incapacity due
to physical or mental illness, and such inability, at least 26 weeks after
its commencement, is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Employee or the
Employee's legal representative (such Agreement as to acceptability not to be
unreasonably withheld). Termination resulting from Disability may only be
effected after at least 30 days' written notice by the Company of its
intention to terminate the Employee's employment. In the event that the
Employee resumes the performance of substantially all of his duties hereunder
before the termination of his employment becomes effective, the notice of
intent to terminate shall automatically be deemed to have been revoked.
(e) INVOLUNTARY TERMINATION. "Involuntary Termination" shall mean
(i) a reduction by the Company in the Monthly Base Pay of Employee as in
effect immediately prior to such reduction,
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<PAGE>
except when a reduction in Monthly Base Pay is implemented for a majority of
the Company's employees; (ii) without the Employee's express written consent,
the Company requires the Employee to change the location of his or her job or
office, so that he or she will be based at a location more than fifty (50)
miles from the location of his job or office immediately prior to the Change
of Control; (iii) the cost to the Company of Company-provided benefits to
Employee, taken as a whole, under plans, arrangements policies and
procedures, materially decreases below the cost of the Company-provided
benefits to Employee immediately prior to the Change of Control, or the cost
to the Employee of such benefits materially increases above the cost to the
Employee immediately prior to the Change of Control; however, if such
decrease or increase results either from the Company's good faith exercise of
business judgment, a decrease that is implemented affecting the majority of
Company's employees, or in response to changes in federal or state law, such
decrease or increase shall not constitute Involuntary Termination; (iv) the
significant reduction of the Employee's duties and responsibilities, relative
to the Employee's duties and responsibilities as in effect immediately prior
to such reduction; (v) a successor company fails or refuses to assume the
Company's obligations under this Agreement.
6. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. Any successor to the Company (whether
direct or indirect and whether by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's
business and/or assets shall assume the obligations under this Agreement and
agree expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform
such obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this Section 6(a) or which becomes bound by the terms of this
Agreement by operation of law.
(b) EMPLOYEE'S SUCCESSORS. The terms of this Agreement and all
rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
7. NOTICE.
(a) GENERAL. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case of
the Employee, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause or by the Employee as a result of a voluntary resignation or an
Involuntary Termination shall be communicated by a notice of termination to
the other party hereto given in accordance with Section 8(a) of this
Agreement. Such notice shall indicate the specific termination provision in
this Agreement relied upon, shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for
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<PAGE>
termination under the provision so indicated, and shall specify the
termination date (which shall be not more than 30 days after the giving of
such notice). The failure by the Employee to include in the notice any fact
or circumstance which contributes to a showing of Involuntary Termination
shall not waive any right of the Employee hereunder or preclude the Employee
from asserting such fact or circumstance in enforcing his rights hereunder.
8. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall
any such payment be reduced by any earnings that the Employee may receive
from any other source.
(b) WAIVER. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed
to in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by
the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(c) ENTIRE AGREEMENT. This Agreement, together with the Employment
Agreement (if any), constitutes the entire agreement of the parties hereto
and supersedes in their entirety all prior undertakings and agreements of the
parties with respect to the subject matter hereof.
(d) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(e) SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full
force and effect.
(f) WITHHOLDING. All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.
(g) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
-6-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and
year set forth below.
COMPANY GENUS, INC.
By:____________________________________
Title:_________________________________
Date:_________________
EMPLOYEE __________________________________
Date:_________________
-7-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Genus Subsidiary Corporation, a California corporation.
General Ionex Corporation, a Massachusetts corporation.
Ionex/HEI Corporation, a Massachusetts corporation.
Genus Europa GmbH, a German company.
Genus Europa Ltd., a British company.
Genus Europa SARL, a French company.
Genus Europa S.r.l., an Italian company.
Genus KK, a Japanese company.
Genus Korea, Ltd., a Korean company.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Genus, Inc. and subsidiaries on Form S-8 (File Nos. 33-28394, 33-38657,
33-56192 and 333-29999) of our report, which includes an explanatory paragraph
regarding the Company's ability to continue as a going concern, dated January
26, 1998, except for Notes 1, 5 and 16 as to which the date is March 2, 1998,
and of our report dated January 26, 1998, on our audits of the consolidated
financial statements and financial statement schedule, respectively, of Genus,
Inc. and subsidiaries as of December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, which reports are included in
this Annual Report on Form 10-K/A.
COOPERS & LYBRAND L.L.P.
San Jose, California
April 28, 1998
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